Dublin, Ireland headquatered aviation finance specialists Avolon have announced an agreement with infrastructure investor I Squared Capital and a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) to establish a new aircraft leasing investment platform, Constellation Aviation.
The joint venture will combine long-term institutional investment with Avolon’s established aircraft leasing, asset management and servicing capabilities, creating a platform designed to support airline fleet requirements while providing investors with exposure to long-term contracted aviation assets.
As part of the agreement, Constellation is expected to acquire an initial portfolio of aircraft from Avolon with a current market value of approximately $1.4 billion. The portfolio comprises 22 modern, fuel-efficient aircraft, with an average age of around five years, leased to 17 airlines across 15 countries.
The new platform is intended to grow over time, taking advantage of several long-term trends in the aviation industry, including increasing passenger demand, limited aircraft manufacturing capacity and airlines’ growing reliance on leasing companies to finance fleet expansion and renewal.
With aircraft manufacturers facing substantial order backlogs and delivery slots increasingly difficult to secure, leasing companies continue to play an important role in helping airlines access the aircraft they need without having to purchase every aircraft outright.
Avolon will retain a minority equity interest in Constellation and will act as its exclusive aircraft manager and servicer. This arrangement will allow the new business to draw on Avolon’s existing expertise in aircraft origination, leasing, technical management and asset servicing.
Ross O’Connor, CFO of Avolon, said the agreement reflected the confidence that major institutional investors have in both the aviation sector and Avolon’s capabilities.
He commented: “We are delighted to announce the agreement to launch Constellation Aviation with I Squared Capital and ADIA. The joint venture will combine long-term institutional capital with Avolon’s leasing, servicing and asset management expertise.
“Constellation will expand our asset management business and reflects the confidence leading institutional investors place in aviation and Avolon’s ability to originate, manage and service high-quality assets.”
Gautam Bhandari, Co-Founder, Managing Partner and Global Chief Investment Officer of I Squared Capital, highlighted the challenges airlines face in securing new aircraft as manufacturers’ order books continue to extend years into the future.
He said: “Aircraft manufacturers’ order books now stretch a decade or more into the future, and airlines rely on lessors with scale and aircraft delivery slots to grow their fleets.
“Avolon has one of the largest order books with Boeing and Airbus and thus enjoys significant benefits of scale. Partnering with Avolon gives Constellation immediate access to a modern aircraft portfolio and a proven origination and servicing platform.
“Together with ADIA, we look forward to building Constellation into a leading aviation infrastructure leasing platform.”
Khadem AlRemeithi, Executive Director of the Infrastructure Department at ADIA, added that aircraft leasing represented a resilient and growing investment sector, supported by sustained demand for modern aircraft.
“The Constellation platform brings together two like-minded investors with one of the world’s leading operators to meet that demand,” he added.
The transaction remains subject to the necessary regulatory approvals, with completion expected once these have been secured.
The joint venture will be supported by a syndicated debt facility provided by a group of international banks. BNP Paribas, Crédit Agricole Corporate and Investment Bank, Société Générale, ING, MUFG and Mizuho will act as Joint Lead Bookrunners, with Mizuho also serving as financial adviser to the investors.
Milbank LLP acted as legal counsel to the investors, while Clifford Chance advised Avolon.
The launch of Constellation Aviation represents a further example of institutional investment flowing into aircraft leasing, as the industry looks to bridge the gap between airline fleet requirements and the constrained supply of new aircraft.
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