A recent wave of public offerings by aircraft lessors signals a search for new ways to raise money in what has always been a capital-intensive business.

Miami-based UniCapital represents the latest in the trend towards public offerings that started less than a year ago. UniCapital was formed last October to consolidate 12 equipment lessors and raise capital to fund their growth. Two of those companies, Cauff Lippman Aviation and NSJ Group, are aircraft lessors. At press time UniCapital was planning an ambitious US$630 million initial public offering on the New York stock exchange, with half of the proceeds earmarked to buy out current owners. UniCapital may be the most daring of the recent lessor floats, since 96 per cent of its entire capitalisation would come from the IPO.

Heller Financial, the Chicago-based subsidiary of Fuji Bank, is another finance company involved in aircraft leasing that has decided to tap public capital. At press time it was completing a common stock IPO. This follows a successful public float underwritten by Morgan Stanley of 33 leased aircraft that International Lease Finance Corporation was selling earlier this year.

CIT Group may have started this trend last November when it sold 23 per cent of its shares in an IPO. Jeffrey Knittel, CIT executive vice-president, claims the decision to go public did not relate specifically to CIT's aircraft leasing business. According to Knittel, the IPO decision resulted from a company-wide analysis of the best way to raise capital. 'Aerospace was one component of that, but only one,' says Knittel.

By contrast, the decision to go public in April by Sweden's Indigo Aviation was based entirely on aircraft leasing. Indigo had been expanding its portfolio over the past four years until it reached the point where it felt it needed to boost capitalisation before it could grow anymore.

The result was an IPO in Stockholm and New York that raised about $41 million after underwriters exercised their options. Taiwan's Hwa-Hsia Leasing, which also plans its IPO this year, hopes to raise between $9 and $12 million as part of its new strategy to acquire about half its funding requirements from capital markets, rather than relying entirely on debt.

Some lessors are sceptical about public offerings as a means to raise capital. 'It's a classic example of Alan Greenspan's irrational exuberance,' says one.

But others think aircraft lessors can be as conducive to public ownership as any other business. John Willingham, outgoing managing director of Singapore Aircraft Leasing Enterprise, says: 'Other businesses are just as long-term and capital-intensive and are quite easily traded. It's really a question of how well you manage through up and down cycles. There's no reason why an operating lessor shouldn't be a successful publicly traded company.'

To underscore his point, Willingham expects Sale to consider its own IPO 'sometime after the year 2000'. Unlike lessors which depend on public funding, however, Sale is looking to it strictly as a supplement. 'Our capital for future expansion is quite adequate and our current shareholders are not expecting any dilution,' says Willingham.

Boullioun Aviation's CEO, Robert Genise, says he is concerned though that deals pushed into the public market may 'put excessive risk in prospective investors' hands. I don't know if that's good for the industry long-term.'

Source: Airline Business