Avolon, one of a batch of new operating lessors that entered the sector in 2010, opened 2011 with style, raising $865 million from the banking debt market and $250 million in equity from existing shareholders during two weeks in January.

Like its peers, the company has been working on the assumption that commercial debt was the main route to growth, but its recent success in fund-raising has given founder and chief executive Domnhal Slattery confidence that Avolon can also this year tap capital markets, raising money by selling corporate bonds, including deals that offer specific aircraft as collateral.

"The objective," says Slattery, "is to position Avolon to have access to different markets over the next few years. We have raised $1 billion from the debt market over the past seven months, but we are looking at the capital markets."

Avolon's committed portfolio

If market conditions are right, Avolon could tap the capital markets in the second half of this year. Slattery believes a successful move into the corporate bond market would give Avolon access to other high-yield secured and unsecured products. And, he adds, Avolon is "looking at the pros and cons" of securitised transactions.

Since its May 2010 start-up Avolon has placed orders directly with Airbus for eight A320s and Boeing for 12 737-800s. The lessor has also grown rapidly through purchase and leaseback transactions and by buying new aircraft from other lessors.

To support its growth, Avolon tapped the German aviation finance banks earlier this month and secured $400 million of debt from DVB Bank, Nord and KfW IPEX-Bank - in separate bilateral transactions with average maturity of seven years.

In January 2011, it tapped the US commercial debt market for $465 million. The transaction, says Slattery, marked the first time in many years that bank debt for an aircraft acqusition was exclusively structured by US banks - a fully underwritten facility that matures in summer 2017 from Citi and Morgan Stanley, led by Wells Fargo Securities.


Avolon has raised $1 billion of equity and in excess of $1.5 billion of debt in seven months. Its current debt-equity split stands at 60-40%, but Slattery calls that conservative leverage: "Our medium-term vision is 75% debt and 25% equity."

The additional financing will support the continued growth of the Avolon fleet, which stands at a commitment to 64 aircraft, valued at over $2.8 billion.

The lessor, which aims to build a 150-aircraft portfolio worth $6 billion in the medium term, could grow with another 30 aircraft this year. "We will be happy with a 90-plus aircraft portfolio on a committed basis by the end of 2011," says Slattery, adding that Avolon will continue its strategy of acquiring aircraft on an opportunistic basis under sale and leaseback deals, rather than making any orders directly from airframers, at least this year.

Avolon's focus is on its Boeing order. The first aircraft will be delivered in 2012, and an Asian carrier has signed a letter of intent for four aircraft. Deliveries of the A320s start in 2014.

Slattery sees the intensity of activity in the sale and leaseback market, which has been a key route to fleet development for start-up lessors, slowing this year: "The market was more competitive in the second half of last year than in the first. But the pace [of market development] will be less intense this year."

Source: Flight International