by Jeremy Lemer | April 22, 2010 | Financial Times |
The Carlyle Group intends to invest $600m in a joint venture that will buy commercial aviation assets around the world in the latest sign of a gradual thaw in the battered aviation finance markets.
Carlyle, the private equity group, and RPK Capital Management, a Chicago based specialist in aviation investments, have set up a new company that will purchase over $1bn of assets thanks to leverage.
RPK, which will manage the portfolio and also invest $20m, intends to buy bank debt secured against assets such as jets and spare parts and also various aircraft and engines that will then be leased out to airlines.
The move marks the first time that Carlyle, which has over $88bn of assets under management, has invested in aircraft leasing and debt and is an unusual divergence from its usual practice of running its own investments.
In the past it has made substantial investments in the aerospace and defence sector but has mainly favoured manufacturing companies like Vought Aircraft Industries, a major component supplier.
Carlyle is one of a number of investment companies that have targeted aviation assets in recent weeks. In late March Oaktree Capital Management helped kick start Jackson Square Aviation, an aircraft leasing company, with a $500m investment.
Adam Palmer, a managing director at Carlyle, said that the company had looked at the market several times over the last few years but until now had never found the right moment, or the right business plan, to make it worthwhile.
“We are seeing signs of recovery in the airline consumer market, but the credit dislocation has been so severe that as capital comes back it is flowing into blue chip carriers like Lufthansa,” he said.
“There are hundreds of other airlines that are struggling to find financing … the question is will the markets be open to them or will there be some alternative structure that they are forced to look to? That is what we are trying to create.”
RPK will focus on lending and leasing to second and third tier airlines around the world and will also look at older aircraft. The group will take a cyclical approach, putting capital to work for about five to seven years.
Since the summer of 2009 capital markets have reopened to the major airlines and they have successfully raised billions of dollars to finance new aircraft orders and replenish their reserves.
But elsewhere financing remains tight as leasing companies, such as International Lease Finance Corp, that have traditionally supported the market sell assets rather than extending new financing and commercial banks husband their capital.
According to DVB Bank, a transport finance specialist, in 2010 about $30bn will be required to fund new deliveries to non-prime carriers alone – an amount that will only partially be filled by export credit agencies, such as the US Export-Import Bank, and other sources.
Evercore Partners and Debevoise & Plimpton advised Carlyle on the deal. RPK was advised by The Seabury Group and K&L Gates
By Jeremy Lemer Published: April 22, 2010