Macquarie, Orix exploring offers Awas US$5b aircraft portfolio

PUBLISHED : Friday, 05 September, 2014, 12:36pm
UPDATED : Friday, 05 September, 2014, 12:36pm

Australia’s Macquarie Group and Japan’s Orix are among a handful of companies exploring binding offers for the US$5 billion aircraft portfolio being sold by Dublin-based lessor Awas, people familiar with the matter said.

Macquarie’s aircraft leasing subsidiary Macquarie AirFinance, and Orix Aviation, part of the Japanese financial group, are set to compete against other Asian parties bidding for the asset, including Cheung Kong Holdings, which has previously confirmed its interest.

Other bidders include Hong Kong Aviation Capital, which is owned by China’s HNA Group and Bohai Leasing, and SMBC Aviation Capital - part of Sumitomo Mitsui Financial Group, according to the people familiar with the matter.

Awas, one of the world’s biggest aircraft lessors and owned by British private equity firm Terra Firma, plans to seek second-round bids in late September with the hope of finalising a deal by next month, the people said, asking not to be named because the matter is not public.

The companies’ interest underscores strong demand for aircraft assets from Asian buyers, at a time when the region has become the world’s fastest-growing market as Asian airlines tap into the spending power of travellers.

Representatives for Macquarie, Hong Kong Aviation Capital, Orix, SMBC Aviation Capital and Terra Firma all declined comment.

Cheung Kong, controlled by Asian tycoon Li Ka-shing, said last month it had submitted a preliminary bid for the aircraft portfolio.

Terra Firma has hired Goldman Sachs and Deutsche Bank to explore exit options for Awas, which has about 300 planes on lease to more than 100 airlines, including Singapore Airlines and LATAM Airlines .

The company is looking to sell newer aircraft for around US$5 billion, while exploring an initial public offering for the remaining portfolio of older planes that could be worth about US$8 billion, Reuters reported in July.

Bidders are drawn to the sector’s strong returns and that the investment is secured against an underlying mobile asset, people familiar with the process said. Access to cheap funding and the potential for huge industry growth in Asia has driven expansion plans of Asian companies.

New airlines coming up to meet growth in emerging markets are increasingly looking to rent planes from the leasing industry, which is currently estimated to have aircraft portfolios worth US$200 billion.

Asian players have muscled into the aircraft leasing industry in recent years. Leasing arms of Industrial and Commercial Bank of China, Bank of China, and China Development Bank have already emerged as significant global players. Acquisitions by SMFG and Mitsubishi UFJ Financial Group have helped these groups also gain a global footprint.

In the process, they have taken on the world’s two biggest lessors, GECAS, a unit of General Electric, and International Lease Finance, now part of AerCap.

Another Dublin-based aircraft leasing firm that has been exploring a sale, Avolon, has also attracted Asian interest. China’s sovereign wealth fund China Investment, teamed up with state-owned aerospace and defence company, Aviation Industry Corporation of China, are in talks to buy Avolon.

Terra Firma bought Awas from Morgan Stanley in 2006 for US$2.5 billion and a year later acquired rival Pegasus for US$5.2 billion, merging the groups to create the world’s third-largest plane lessor.

For Terra Firma, which is run by British financier Guy Hands, Awas is one of its largest investments. CPPIB, the Canada Pension Plan Investment Board, also owns a significant minority stake.