Sunday 4 December 2016

Chinese crash knocks $82m off Avolon price tag

Harry Leech and Nick Webb

Published 06/09/2015 | 02:30

Domhnal Slattery's aviation leasing group Avolon lost $82m from its sale price due to fears over the Chinese economy
Domhnal Slattery's aviation leasing group Avolon lost $82m from its sale price due to fears over the Chinese economy

Stock market volatility caused by fears over the health of the Chinese economy knocked $82m off the sale price of Domhnal Slattery's aviation leasing group Avolon. Last week, Bohai Leasing, a unit of Chinese aviation and shipping conglomerate HNA Group, agreed to buy Avolon for $31 per share, which attributes an enterprise value of $7.6bn to the Irish group.

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The $31 per share offer is a reduction on an earlier $32 per share indicative offer made by Bohai leasing on August 10. The "agreed price... reflects significant volatility across global equity markets," according to the two companies.

Bohai also agreed to hike its "break fee" or deposit by $100m to $350m to show its commitment to the deal. The sum, which represents $4.25 per Avolon share, is payable to the leasing company under certain circumstances if the transaction isn't completed.

The deal underscores the increasing prominence of China's leasing companies in one of the world's fastest-growing aviation markets. Leased planes account for 36pc of the total airliner fleet in the Asia-Pacific region, according to Bloomberg Intelligence, second only to Europe.

"Chinese companies have been growing rapidly in aircraft leasing in recent years," said Kazunori Morisaki, an analyst at Japan Aviation Management Research in Tokyo. "China has a very large domestic aviation market, so there is room to have a big aviation leasing industry."

Serial aviation entrepreneur Slattery set up Avolon with John Higgins in 2010. They secured more than $7bn in backing from private equity firms and banks, including Cinven and CVC, and Oak Hill Capital Partner before buying up a swathe of new jets. The leasing group has more than 260 planes delivered or on order, and its fleet's average age of 2.6 years is the youngest among major aircraft lessors.

The company floated last December at a price of $20 per share, so its brief period as a listed company has generated a 55pc upside in just nine months. Slattery will be the biggest individual beneficiary of the deal, with his 1.1m shares worth almost €31m. He had already made a fortune when selling another Irish aircraft-leasing business to Royal Bank of Scotland in 2001. Avolon co-founder John Higgins is in line for a €13.4m pay out if the takeover goes through.

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