April 24, 2017, © Leeham Co.: AVi8 Air Capital is a new lessor with a different business model.
Instead of the standard operating lease model, Avi8’s mission is to buy groups of airplanes from other lessors and later sell them. AVi8 intends to be a clearing house for other lessors.
The company, which pronounces its name with the long “A” (as in aviator), was formed last year and expects to conclude its first transaction this year.
“The difference between AVi8 and other leasing companies is as follows,” says Sisson. “When I was running AWAS, I was told by a number of investment banks that you get economies of scale by getting between $12bn and $18bn in assets. You can be bigger than that, but when you get between $12bn and $18bn, you capture real economies of scale – you’re buying enough new aircraft from OEMs, financing aircraft in bulk in capital markets/bank syndicates/Export Credit agencies, and leasing enough aircraft to airlines globally.”
This, among other things, was important to the rating agencies, Sisson said.
Sisson grew AWAS from $5bn to $12.5bn and realized the investment banks were wrong, he says.
“What actually matters is the velocity of transactions. It does matter how many aircraft you lease. It does matter how many aircraft you buy from Boeing and Airbus.
“What doesn’t matter is if we go to Boeing and Airbus, and you buy [for example] five 787s and five A330neos and we put them on lease, say five to Lufthansa and five to Singapore Airlines, and finance them in the capital markets, it doesn’t matter on the following day if we keep them or sell them. In other words – the amount and velocity of transactions matters – not the total dollar value of aircraft a leasing company holds on any given day.” he says.
It matters more that these or forward orders are sold to financial institutions that want Lufthansa or Singapore in their portfolios, he says.
AVi8 is scale agnostic, Sisson says. “We plan to buy aircraft in a down cycle and sell them in an up cycle. We believe we can grow to $6bn to $9bn in total assets in a down cycle quite comfortably. Then we can shrink to zero or more reasonably to $2bn-$4bn in an up cycle.”
Then Avi8 repeats the process.
“We’re setting AVi8 to be a clearing house for other lessors, OEMs and airlines,” Sisson says. “We are deliberately setting up AVi8 to be a clearing house for the industry. We are not actually looking to compete with other leasing companies. We want to help them. We want to be their partner.”
Another layer siphoning off profits from those that do real work. Airlines, Airframers.
I sure do not get you sell them after you lease them then someone else gets the proceeds from the lease and you get ?
I am sure it makes sense to someone.
Think of it as owning an apartment building. You can sell the building to someone else, they get the rents going forward, and you get the fair sale price for the building. That’s presumably some combination of building value and rental stream. The value for buying/selling the interest in an aircraft lease is mainly the rental stream (current term and possible future renewal/release), any deposits/reserves transferred, and residual value at end of life.
Fred: It seems to me that the long term profit is where the money is at, I would not be selling the new fleets, I would want to sell the old hard to place ones.
Seems odd, maybe he knows what he is doing or like many great ideas, it flops.
I’ve seen something speed-driven of sorts @ Maersk Air. Maersk Holdings were seeking depreciation basis to set off against profits generated @ Maersk Sealand, and found they could operate eight 737 at break-even under the Maersk Air brand. This lead to a roll-over purchase scheme, four aircraft each year. The important aspect was to make sure those assets entered aktiva in december year N-1, then they were operated in year N and N+1, to finally leave Aktiva in January year N+2. They were resold aged 2 years and 2 months, but under Danish tax-depreciation laws they were depreciated at the degressive rate over four full calendar years. In this way Maersk Air purchased some 32 units 737 over a period of some ten years, although never more than eight aircraft were operated at any given time period. What Maersk Air did or did not do with those aircraft that kept rolling in, through and out mattered not at all, what mattered was the gigantic complex book-keeping system at the Holding level …
“inspired by the crucial importance of timing in the buying and selling of ships”