Monday 12 November 2018

Avolon bond blow after HNA hit by turbulence

Avolon’s Domhnal Slattery
Avolon’s Domhnal Slattery
Gavin McLoughlin

Gavin McLoughlin

Aircraft lessor Avolon "suffered indirectly" because of the travails of its debt-laden parent HNA Group, according to Avolon boss Domhnal Slattery.

Mr Slattery said the bond market "didn't like that story" - which was bad news for Avolon as it is a significant issuer of bonds.

HNA's stake is due to be reduced to 70pc from 100pc this quarter, once the sale of a stake to Japanese group Orix completes.

"We were always independently run and insulated from a governance perspective. But the reality is the bond market didn't like that story and we're a very large issuer in the US bond markets," Mr Slattery said in an interview with Bloomberg Television.

"So earlier this year we constructed a transaction to sell 30pc of the business to Orix and that's going to close this quarter. And we put in place a new governance framework which basically completely insulates Avolon from HNA in terms of any downside scenario," he added.

HNA went on a borrowing-fuelled spending spree - which has gone into reverse in recent times with the company selling assets to reduce its debt.

Mr Slattery said there was "maybe some glimmer of hope" following a recent bond issuance by HNA.

He said the aircraft-leasing industry continues to grow. "Airlines all over the world are continuing to lease more aircraft, and currently we're hitting like 50pc. So half the aeroplanes flying around the sky are leased. And I think that's going to continue to grow because airlines are now acting like customer sales and marketing entities rather than asset-owning entities. We're seeing it in the hotel industry and other asset-heavy businesses."

He said China remains the biggest market opportunity, despite the recent weakening of the yuan, adding that Vietnam and India also present sizeable opportunities.

"A billion people between India and China are going to move up into the middle class in the next 10 years. All of them are going to get on aeroplanes for the first time."

Foreign exchange volatility and the recent rise in the oil price mean airlines are currently facing more headwinds than they have for the last three-to-five years. He said Avolon has its lease contracts and financing locked in, so the issue it focuses on most in terms of a potential downturn is defaults on lease payments by airlines

"On a global basis there's different stress points in different parts of the world right now. We're seeing more airlines suffering cash-flow challenges around fuel because they kind of got addicted to cheap fuel for a number of years. Fuel obviously has increased dramatically and we expect it to continue to go up," he said.

Irish Independent

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