Managers that offer aviation financing are finding a silver lining in the pandemic, as airlines are more likely to lease or enter into sale-leaseback agreements rather than buy the aircraft outright, industry sources say.
Such arrangements help airlines avoid adding more debt to their already burdened balance sheets.
As banks pull back from aviation financing, private equity groups are stepping in, buying the new planes that airlines had ordered as they are being delivered and then leasing them back to the airlines. The sale-leaseback business is growing as manufacturers work through a huge backlog of aircraft orders, managers said. What's more, during the pandemic, some managers launched direct lending businesses to help airlines repay billions in government loans by replacing them with private debt.
Private equity firms are bulking up their capabilities in order to capitalize on these trends.
In 2021, Ares Management Corp. financed the launch of a leasing company, Vmo Aircraft Leasing LP. Eight months later Vmo doubled its assets with investments from Oaktree Capital Management LP and Diameter Capital.
Apollo Global Management Inc. also invests in aviation finance through funds including Navigator Aviation Fund I, as well as through its business development company, Apollo Investment Corp., which owns Merx Aviation Finance LLC, a global aircraft leasing, management and finance company. Meanwhile, its insurance subsidiary, Athene Holding, owns PK AirFinance, an aviation-focused lender.
Managers like aviation finance for its cash flow, and so do some investors. In February, aircraft leasing company BBAM Aircraft Leasing & Management closed its latest flagship aircraft leasing fund, the $1.5 billion Incline Aviation II.
The $48.6 billion Arizona State Retirement System, Phoenix, has a fund of one investing in aviation finance with hedge fund Sculptor Capital Management Inc. Both the $246.3 billion New York State Common Retirement Fund, Albany, and $180 billion Florida Retirement System, Tallahassee, are investors in Carlyle Group Inc.’s new aviation fund, Carlyle Aviation Leasing Fund. Both have committed $200 million to the fund.