Intrepid Aviation has a new management team in place to focus on the lessor’s long-term competiveness following the bankruptcy filing of its largest lessee, Skymark Airlines, earlier this year.
On 25 August, Intrepid appointed Olaf Sachau to the role of chief executive to replace Frank Pray, who had led Intrepid since 2011. Pray left his post to pursue other interests.
The lessor also promoted former GECAS executive Doug Winter to the newly created position of president and commercial chief, and its global controller, Mike Lungariello, became finance chief, replacing Sachau.
In his first interview with Flightglobal since taking the helm just over a month ago, Sachau acknowledges one thing that has not changed in the wake of personnel changes and Skymark's bankruptcy is the “commitment to the business” by management and shareholders.
“Doug and I took on new leadership and Michael Lungariello was promoted - those are all positive developments, and it shows that the shareholders felt strongly about the existing management team, our strength and that we had the talent in place to lead the business forward.
“What we’ve established at Intrepid is a well-calibrated platform to continue to invest in a young, modern fleet of passenger aircraft on long initial lease terms to established airlines.”
But there is no denying that the shift in management comes during a challenging time – Intrepid currently has five Airbus A330-300s on the ground as a result of Skymark's bankruptcy filing in January.
A further two new A330s had been due for delivery to the Japanese carrier, but are now scheduled to be purchased by Intrepid under its purchase agreement towards the end of this year.
“We are actively remarketing all seven A330s. What we especially like about the A330 market is that it has a strong customer base, and is also well dispersed regionally,” says Sachau.
He admits there is currently some excess widebody capacity in the market, “but this isn’t specific to the A330”.
One distinction for Intrepid, he argues, is that the lessor’s ex-Skymark designated A330s are essentially new and will be available in an entirely new configuration. “This is an attractive and differentiating factor.”
With Skymark, the aircraft had 271 seats with a 38in pitch, but the lessor admits this configuration is “not suitable for most airlines’ needs”.
“Therefore, we anticipate reconfiguration requirement for all seven aircraft. Given the bespoke configuration of Skymark, we do anticipate Intrepid having to accommodate for a more generic two class reconfiguration,” he says.
Costs for that could be borne by the airline or alternatively by the lessor and then “rentalised”.
Although Intrepid has concentrated solely on widebody assets, Sachau dismisses that focus as a reason for its situation with Skymark.
“When Intrepid first signed up the placement of the A330s with Skymark, back in 2011 and 2012, Skymark was obviously in a different financial situation. What we liked about Skymark was their strong historical profitability, their unique market position and slot holdings at Tokyo Haneda Airport,” he says. “Things changed for Skymark and the macro-environment in Japan changed, especially in terms of competition. Also, there was the yen-to-US dollar depreciation.”
He maintains that widebodies will remain an important part of Intrepid’s fleet focus, “but the strategy going forward doesn’t need to be solely twin engine widebodies,” he adds. “Obviously, a widebody strategy must be underpinned and reliant on placement with strong airline credits.”
Intrepid also has four unplaced Boeing 777-300ER deliveries from an order for up to 10 units, including six firm, powered by General Electric GE90-115B engines.
The lessor's first two 777-300ER deliveries, which are scheduled for October and December 2016, are on long-term lease with Philippine Airlines.
Intrepid will take a further three units in 2017 and the final unit from the order, placed in 2014, will arrive in 2018.
The lessor’s existing core portfolio is “performing incredibly well” with 19 aircraft on lease, generating “strong operating cash flows”, says Sachau.
Reservoir Capital and Centerbridge Partners, the main shareholders, continue to provide support for the lessor, he says, adding: “We also hold strong relationships with commercial banks, and they have been supporting us with secured bridge funding solutions.”
The lessor also recently raised a $120 million through an unsecured senior notes offering in June. The notes priced at 8.25%, which is pricey in today’s environment, however, the financing is short-term with the notes due in 2017.
Skymark's filing for bankruptcy protection on 28 January prompted Intrepid to postpone its initial public offering on the New York Stock Exchange.
On August 6, 2014, it submitted its first S1 offering prospectus to the US Securities and Exchange Commission, outlining plans to raise up to $150 million under the symbol INTR.
While the IPO was intended to raise additional equity capital for the business, it would have meant exposing the company to greater public scrutiny, which, clearly Intrepid did not need during the time of Skymark’s bankruptcy.
Sachau says an IPO remains “one of the capital raising and exit options the lessor is still interested in pursuing”. He would not be drawn on when such a move could take place.
No doubt the leasing sector is clearly undergoing a round of consolidation, with Bohai Leasing recently agreeing to takeover Avolon Aviation, but Sachau shrugs off such a move for Intrepid at the moment.
“We’re still a young, developing business; I am not sure that industry M&A, or a takeover, makes sense given where we sit in our life cycle,” he says.
Sachau maintains that the “ultimate goal” for Intrepid is to maximise shareholder value.
He adds: “Obviously, our shareholders will sell the business at some point to achieve their returns. At the same time, we have built up a competent leasing platform, we’re still young and given where we are in our own evolution, I am not sure an exit now would deliver the highest value for our shareholders.”
Source: Cirium Dashboard
