Tuesday 24 October 2017

Slattery seeks another major Avolon purchase

Leasing tycoon wants to make his business the sector's top player

‘This is a very difficult market to get to number one,’ said Avolon boss Domhnal Slattery
‘This is a very difficult market to get to number one,’ said Avolon boss Domhnal Slattery
Gavin McLoughlin

Gavin McLoughlin

Avolon boss Domhnal Slattery is looking to make another major acquisition as he seeks to make the aircraft lessor the largest player in its sector. The company - owned by China's HNA Group - recently bought rival CIT for $10bn and now follows only GECAS and Irish rival Aercap in the world market.

"This is a very difficult market to get to number one in because most of our bigger competitors are growing and have aspirations for growth," Slattery said.

"I think there'll be one other major acquisition, rather than a series of small acquisitions. And then we'll supplement that by organic growth.

"Now the question is when will that happen? The CIT transaction came at the perfect time from our perspective, in that it wasn't a distress play but you had a willing seller.

"We haven't seen a distress play in this industry really since the ILFC-AIG trade [ILFC was sold by AIG to Aercap in 2013].

"We work in a cyclical industry so if you're pragmatic and you're looking out over the next number of years, your experience will tell you there will be distress eventually. I can't actually see it at the moment, but it will come."

Slattery was speaking in an interview with the International Society of Transport Aircraft Trading.

He said he was concerned about the lease rates being obtained in the industry.

"Currently the lease rates lessors are garnering for new equipment... are probably below where we expected them to be because of competition," Slattery said.

He added that one of the reasons he liked the idea of HNA owning the business he co-founded was because both entities wanted to make the combined business the biggest purchaser of aircraft in the world - meaning it would get the best rates on purchases. HNA has a number of airlines.

Slattery said the business wants to get to investment grade status via the ratings agencies. This would make borrowing on the capital markets easier.

"This business must fund itself in the capital markets. We've been a very successful participant in the bank market over the last seven years.

"However, given the scale of our needs, we have to diversify. We started that earlier this year with the $8.5bn of debt capital we issued for the [CIT] acquisition, which was a $5.5bn term loan and a $3bn inaugural bond."

He said he would operate the business on a debt-to-equity ratio of around 3:1. Speaking about the industry more generally, he said he has been concerned for some time that too many aircraft are being produced by the manufacturers.

"But at the same time I'm sort of dumbfounded every year that airlines still have the capacity to take them," he added.

He also said there may be potential stresses in the market for wide-body aircraft.

Sunday Indo Business

Also in Business