Avolon eyes No. 1 spot on acquisitions and organic growth

We can only achieve that sort of scale by further M&A.

Domhnal Slattery

HONG KONG: Chinese-owned Avolon, the world’s third-biggest aircraft lessor, wants to double in size through a mix of organic growth and acquisitions at a time when the industry outlook looks positive for several years, the company’s CEO said.

“Avolon’s strategic objective is to become No. 1 in the world in as short a time as possible really,” Avolon chief executive Domhnal Slattery said, but topping GE Capital Aviation Services and AerCap Holdings would require doubling in size.

“We can only achieve that sort of scale by further M&A, which means that we’ll be opportunistically waiting for the moment. My feeling though is that moment to pounce will only come in scale at the next downcycle,” Slattery told Reuters in an interview on the sidelines of Euromoney’s Asia Pacific Airfinance Conference.

“So between now and then, Avolon will grow organically, which is in the region of US$4bil to US$5bil per year.”

The influx of more than US$70bil to the leasing industry from Chinese banks and other investors over the past decade is helping airlines expand their fleets.

But it is also curbing returns to be made by traditional players in a sector fast emerging as a significant new asset class.

Chinese capital now accounts for 28% of the US$261bil deployed by leasing firms worldwide, a study suggested on Monday, up from 5% nine years ago.

Slattery said he expected a flood of Asian capital to continue to supply the industry over the next three to five years because Chinese institutional investors and asset managers liked the risk/reward ratio of investing in aircraft.

“What we will see over the next couple of years is less start-up lessors, because there have been so many, but more institutional players wanting to put big chunks of capital to work in this industry, but they don’t necessarily want to own an aircraft leasing company,” said Slattery, who founded the Dublin-based company with fellow entrepreneur John Higgins in 2010.

Avolon, which has a balance sheet of almost US$30bil, was sold to Shenzhen-listed Bohai Capital Holding Co, part of Chinese conglomerate HNA Group, in 2015.

The lessor has a portfolio of 915 owned, managed and committed planes catering to 151 airlines in 65 countries, many of which were acquired when it bought the aircraft leasing business of rival CIT Group Inc for around US$10bil last year.

Slattery said the industry outlook remained positive due to strong airline profitability and reasonable oil prices, with a downturn unlikely to occur for several years.

“I wouldn’t say it’s the best but it’s the most stable,” he said of the industry’s health.

”If you are a capital provider, debt capital provider, you like stability.

“Volatility is not really where you want to be.”