Avolon tar­gets global num­ber one slot af­ter seal­ing €2bn Orix deal

Irish Independent - Business Week - - Front Page - John Mul­li­gan BREXIT COV­ER­AGE – P3

DUBLIN-BASED air­craft-lessor Avolon still has its sights set on the be­ing the world’s top player in the sec­tor, but will most likely have to get there via an­other large-scale ac­qui­si­tion, ac­cord­ing to CEO Domh­nal Slat­tery.

It’s cur­rently ranked num­ber three, be­hind Ge­cas and Aer­cap.

Speak­ing to the Ir­ish In­de­pen­dent af­ter Ja­panese firm Orix con­firmed it’s buy­ing a 30pc stake in Avolon for $2.2bn (€1.9bn), Mr Slat­tery said that the fo­cus for the Ir­ish firm and its ul­ti­mate par­ent, Chi­nese con­glom­er­ate HNA, in do­ing the deal was se­cur­ing an in­vest­ment grade rat­ing for Avolon that would spur the Ir­ish com­pany’s growth.

He said that in­vest­ment-grade rat­ing will prob­a­bly be achieved some time next year. Avolon has 890 owned and man­aged air­craft in its port­fo­lio, and has or­ders and com­mit­ments for an­other 328 jets. Orix has 230 owned, man­aged and com­mit­ted air­craft in its port­fo­lio.

To achieve its in­vest­ment-grade rat­ing, Avolon needs to in­crease its level of unse­cured bor­row­ing, and also needs to have a cer­tain level of in­ter­est cover on its debt.

“The only is­sue is when do we is­sue more unse­cured debt,” said Mr Slat­tery.

“We’ve got a $5bn term loan, which is se­cured debt. We can ef­fec­tively pre­pay that at any time and swap it into unse­cured [debt]. But it’s all about price.”

The price be­ing paid for the 30pc stake in Avolon is not far off the $2.6bn equity val­u­a­tion that was placed on Avolon in its en­tirety when Bo­hai ac­quired the leas­ing firm in 2015, when it was listed in New York.

Avolon tripled in size af­ter ac­quir­ing CIT’s leas­ing arm for more than $10bn in 2017.

HNA, which has spent bil­lions on an ac­qui­si­tion spree in re­cent years that in­cluded stakes in the Hilton ho­tel group and Deutsche Bank, has been of­fload­ing as­sets to cut debt. Avolon is cur­rently wholly owned by HNA’s Bo­hai Cap­i­tal.

Mr Slat­tery said that HNA re­mains com­mit­ted to be­ing a long-term share­holder in Avolon, and that no other stake sales of the leas­ing firm are planned.

“The ex­ec­u­tive view of the two share­hold­ers and man­age­ment is that the 70-30 split is a sta­ble, long-term po­si­tion for Avolon,” he said.

“There is no plan – short, medium or long-term – to change that struc­ture, to look at al­ter­na­tive own­er­ship struc­tures, to in­crease Orix’s share or de­crease Bo­hai’s share.”

Avolon CEO Domh­nal Slat­tery

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