Investors are overpaying for older aviation assets amid the surge of capital into the sector, a senior leasing executive has warned.
Among the participants in a part-out panel at the ISTAT Americas conference in Phoenix on 29 February was Robert Korn, president of lessor Apollo Aviation Group, which manages private equity funds with an investment strategy focused on mid-life and mature commercial aircraft.
"In our sector of the business – the private equity side where people are looking for mid-teens returns – there's more capital flowing into that business than there's opportunity," said Korn during the panel discussion. "There's capital that we see and we compete against that's desperately looking for opportunities, and the capital that's coming into that marketplace is taking on risks that it shouldn't be taking because it can't obtain the returns it requires elsewhere."
He adds: "We think it's a dangerous situation. It's causing people to overpay, so sellers take note: it's causing people to overpay for older assets who probably will be looking back three to five years from now, if not sooner, and wondering what they did."
In its own leasing business, Apollo targets 15-year-old Boeing 737NG and Airbus A320ceo narrowbodies. "Our limitation in Apollo is our ability to underwrite transactions, not our ability to finance them," says Korn.
On the subject of new aircraft – "which we really don't play in" – he can offer insights gained via the lessor's credit department, which places and invests in EETCs.
"We see continuing new entrants into that market that are looking for these very sound, stable products," he says. "I think more capital continues to enter that marketplace, but that's to consume the continuing growth of new product that Airbus and Boeing are offering into the marketplace, and the structures that have been designed with these secured financings are so robust and have such strong track records for full repayment that many conservative investors are very happy to invest in these products, and we like to take advantage of that."
Another participant in the panel discussion was Robert Agnew, chief executive of consultancy Morten Beyer & Agnew, who has worked with companies looking to securitise debt on parts and identifies "an uptick in the level of interest" in such activity.
"There seems to be either a desperation on some people's parts that they need money or there's excess money rolling around trying to find addition deals. Not quite sure which one," he adds.
Source: Cirium Dashboard