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HNA's Avolon group to acquire CIT Commercial Air, creating world’s third largest aircraft lessor

HNA Group’s remarkable spending spree continues, with the announcement that its Avolon subsidiary will acquire CIT Commercial Air, the aircraft leasing arm of CIT Group.

The USD10 billion deal will create the world’s third largest lessor - and they may be more to come yet.

Avolon itself was only recently acquired by HNA Group, with the USD2.7 billion purchase agreement being finalised in Jan-2016, via Bohai Capital Holdings.

Avolon is now the core aircraft leasing brand for the HNA Group. Including assets from Hong Kong Aviation Capital, Bohai Capital and several smaller HNA Group leasing firms, Avolon has a fleet of nearly 250 aircraft and almost 200 more on order.

Avolon will double in size with the CIT purchase

The CIT Commercial Air acquisition will again double the scale of the Avolon’s business. The unified portfolio will comprise an in-service fleet of 511 aircraft, along with a managed portfolio of 50.

Avolon and CIT combined have another 349 aircraft on order. This includes 282 new/next generation aircraft, including 195 Airbus commercial jets - A320neo family, A330neo and A350 - and 87 Boeing jets, comprising 59 737 MAXs and 28 787s. The entire portfolio of 910 aircraft is valued at more than USD43 billion.

The combined portfolio will also expand Avolon’s existing customer base by 69 airlines in 20 countries, bringing the total to 154 customers in 61 countries. Geographically, the company’s customer base will now be split one third each across the Americas, Asia Pacific and Europe, Middle East and Africa (EMEA) regions, reducing risk and providing opportunities for yield improvement.

Combined Avolon and CIT Commercial Air fleet metrics*

Total fleet (in-service, managed + on order) 910 aircraft
Fleet value USD43 billion +
Owned and managed portfolio 561 aircraft
Aircraft orders and commitments 349 aircraft
Average fleet age (in service fleet) 4.6 years
Average remaining lease period 6.7 years
Customer base 154

The transaction will be financed through a combination of Avolon’s cash, new equity contributed by Bohai and acquisition debt financing of USD8.5 billion, committed by Morgan Stanley & Co and UBS Investment Bank. The deal is expected to be completed during 1Q2017, following regulatory approvals and other customary closing conditions.

Despite Avolon being just six years old, it is already a powerhouse in the aircraft leasing industry. Avolon’s management team – comprised of industry veterans from RBS - has rapidly developed the company’s international footprint across key global leasing centres.

In addition to its headquarters in Dublin, the company has a strategic Asian regional head office in Hong Kong, and offices in Dubai, Shanghai, Singapore and the US.

The Avolon powerhouse has even grander intentions

The ambitions of Avolon CEO Dómhnal Slattery stretch higher still; and Mr Slattery has the industry’s two leading firms – AerCap and ILFC, both of which control more than 1000 aircraft – in his sights.

Mr Slattery commented that the CIT acquisition is “not the summit of our ambition” but rather a “very important milestone on the journey.”

Largest lessors by fleet (as at 07-Oct-2016)

 Lessor Active On order Total
GECAS 1630 270 1900
AerCap 1227 410 1637
SMBC 453 202 655
Air Lease Corp 278 373 651
CIT Commercial Air
380 132 512
Nordic Aviation Capital 297 194 491
ICBC Leasing 318 173 491
BOC Aviation 265 218 483
Avolon 247 185 432
BBAM 399 0 399
Aviation Capital 260 97 357
Macquarie AirFinance 223 40 263
AWAS 240 15 255

China takes on a leadership role in aircraft leasing

The acquisition is also testament to the rapid expansion of Chinese players in the leasing market. Since 2007, Chinese-owned lessors have expanded their collective fleet from under 500 to more than 2200 aircraft, increasing their share of the domestic leasing market from under 10% to more than half.

Even the large and rapidly growing Chinese leasing market is not enough to satisfy their ambitions, and the massive international market contains further inviting targets for JV, portfolio acquisitions or more outright purchases.

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