Trading Aircraft Assets
Want to invest in a jetliner? Now there’s an app for that, developed and launched recently by SenAer Trading, writes Gerry Byrne
As a senior finance lawyer with almost three decades of experience specialising in international structured finance, Nollaig Murphy is well attuned to the often complex world of aviation transactions. In September 2021, Murphy and colleagues launched SenAer Trading, a digital platform designed to provide buyers and sellers optimised access to the maximum number of potential institutional counterparties in the aircraft and part-out marketplace.
Murphy has been working on the SenAer idea since leaving law firm Maples two years ago. He predicts that SenAer will help newcomers and old-timers alike navigate the many pitfalls in the trading of aviation assets. SenAer aims to facilitate sales in aircraft and aircraft parts by airlines, lessors, OEMs and institutional investors, and there’s a particular focus on widening the traditional investment base for secondary aviation assets.
Murphy believes that many existing participants will welcome an injection of fresh capital into the sector to stabilise, or even increase, asset values.
“It struck me that there is more capital out there than the traditional sources, and that it would help all in the industry by bringing new money to the space,” he says.
With pre-pandemic returns of up to 9%, investing in aviation has been favoured by many cash-rich syndicates. Brand-new airplanes can be bought from Boeing, Airbus, ATR or Embraer, or purchased secondhand from any number of reputable brokers. Leasing companies will take on the management of the aircraft and rent them out to airlines. It is also a very tax-efficient investment, at least in aviation-friendly Ireland.
So, what could possibly go wrong? Well, how about almost everything? Buying an aircraft is one of the most complicated things investors can do. Even the country the aircraft is flying over at the moment that investors sign on the dotted line can have a bearing on financial success or failure.
And what appears to be a secondhand bargain could be hamstrung by maintenance issues. The aircraft could have an exemplary maintenance logbook yet still be facing a gruelling D Check, which will ground it for months. Another ‘buyer beware’ hazard might be a looming deadline for an expensive safety modification called for by a manufacturer or aviation authority.
Even the most sophisticated buyers can get caught out. US airline Southwest acquired a fleet of 88 used 737-800 aircraft between 2013 and 2017 that had previously been operated by overseas airlines. Their maintenance logs were so poorly kept that Southwest could not properly gauge their condition, and at one stage, over a third of the aircraft had to be grounded.
This is where Murphy, alongside his management team of Paul Gorman, Tain Hsia and Conor O’Brien, have spotted an opportunity to help investors navigate the tricky waters of buying and selling within the aviation industry. SenAer uses its technology to upload, host and manage aircraft and part-out sales processes, from initial market teaser to final portfolio transfer, within a closed system.
Upon seller direction, SenAer releases an aircraft sale portfolio and/ or part-out deal summaries to the curated pool of institutional investors. Vendor identity is confidentially controlled until the NDA is executed.
A final-stage bidder process is facilitated to allow uploading of more detailed documents to the portal. This mechanism facilitates instant distribution of detailed documentation to selected recipients, when time is of the essence in finalising bids.
Once a bidder is successful, the SenAer system provides a framework to upload, download and communicate bilaterally between seller and buyer teams. Permissions can be tailored and stratified to configure and limit access to different sectors of documentation for advisor teams, thereby avoiding duplication or unnecessary expense.
Murphy explains: “Our system will take a transaction such as an aircraft sale or a parts sale from conception to completion of the bid, and from there through the legal and technical sales process to completion of the actual transaction. That can all be achieved digitally through the systems and modules we have established.”
While head of aviation in Maples, Murphy observed the enthusiasm of some institutional clients interested in acquiring aviation assets for the first time. At AllianceBernstein, co-founder Paul Gorman noted that fund managers struggled to gain access to the wider market in order to acquire aviation assets. The pair swapped stories, and the SenAer concept was born. More recently, they were joined by Conor O’Brien, described by Murphy as “GPA royalty”.
O’Brien is the former head of tax, legal and aviation leasing at KPMG, and he was also involved in the last significant reboot of the Irish aircraft leasing tax regulations.
The SenAer Trading venture is founder held and self-funded. “We have covered the startup cost ourselves and put in a lot of sweat equity,” says Murphy. “Right now, there has been no external capital raised because there hasn’t been any need for it. We want to try to show proof of concept, and we want to build a base of loyal clients with demonstrable traffic through the system. I suspect that is what other people would want to see as well.”
Murphy has worked on some of the largest aviation funding projects handled in Ireland. He cites a major securitisation project on behalf of Aircastle, one of the world’s top aircraft leasing companies; an Avalon securitisation; and a deal for Emerald Finance, a unit of Avalon.
“Everybody on those deals works hard, long hours,” he recalls. “It can be difficult, logistically, to close them because you’re waiting for an aircraft to be over a particular jurisdiction, or you need to secure the cooperation of a wide variety of counterparties in order to trade the aircraft. That can be difficult with busy flight schedules. That’s what we are trying to do – to make that transaction easier for everybody.”
Over half of all aircraft operated by airlines are leased, and a significant proportion of those aircraft are owned by Irish leasing companies, which, in turn, account for something close to 70% of the global industry.
Aviation is also going through what Murphy terms the “narrow body tech reboot”, where airlines are swapping older-generation planes in favour of more efficient newcomers like the Boeing 737 Max and the Airbus A320neo.
“That will mean that there is going to be a fleet replacement process and dynamic occurring over the next 10 to 15 years that will require the constant trading of aircraft,” Murphy predicts.