A A A
| |

BBAM Buys Asia Aviation Capital Portfolio

Airfinance Journal | March 1, 2018

BBAM-managed entities have agreed to buy Airasia's captive lessor Asia Aviation Capital (AAC) for $1.18 billion, according to a Bursa Malaysia filing.

Under the terms of the agreement, FLY Leasing, Incline B Aviation (Incline) and Nomura Babcock and Brown (NBB) will acquire a portfolio of 84 aircraft and 14 engines, of which 79 aircraft and 14 engines will be leased back to Airasia and its affiliates. FLY and Incline have also entered agreements to acquire 48 aircraft on order by Airasia, and taken an option to acquire a further 50 aircraft to be delivered.

As part of the disposal consideration, Airasia will also receive non-cash considerations of $50 million in FLY American Depositary Shares, resulting in Airasia owning approximately 10.2% of FLY. Airasia will also commit $50 million into Incline Parallel Funds, which will invest alongside the Incline Aviation Master Fund in global aviation investments. As a result of the disposal, Airasia is expected to recognise a gain on sale of approximately MYR 967 million ($246 million).

Harry Forsythe, AAC's deputy chief executive officer and chief commercial officer, tells Airfinance Journal that BBAM is "acquiring the assets only" and not the platform. He referred all other questions to BBAM, including a question about whether any other companies could still purchase the AAC platform or parts of the portfolio.
On 28 February, a source with direct knowledge of the matter said Korea Transportation Asset Management (KOT AM) was still looking at AAC.

Fly Leasing's role

In its own statement, New York Stock Exchange-listed FLY Leasing said that at the closing of the initial stage of the transaction, FLY will acquire 34 A320s and seven aircraft engines. Of these aircraft, which have an average age of 6.6 years and a remaining lease term of 6.2 years, 33 are on lease to five different airlines within the Airasia group, and one aircraft is on lease to a "third-party" airline.

In addition to the aircraft acquired in the first stage of the transaction, FLY has agreed to acquire 21 A320neo family aircraft subject to 12-year leases to Airasia Group airlines. These 21 aircraft are scheduled to be delivered from the manufacturer between 2019 and 2021.

Vedder Price and Jones Day acted as legal advisors to FLY. BNP Paribas, Citi, Commonwealth Bank of Australia and Deutsche Bank have provided committed financing to FLY for the transaction. EY and KPMG acted as tax advisors to FLY.Credit Suisse, BNP Paribas and RHB are acting as joint financial advisors, and Milbank and ZICO are acting as counsels to Airasia.

In the final stage of the transaction, FLY will acquire the option to purchase an additional 20 A320neo family aircraft, not subject to lease, which begin arriving from the manufacturer in 2019.

Under the terms of the agreement, AAB will receive approximately $1 billion in cash and 3,333,333 newly­issued FLY shares at $15 per share as part of the initial stage of the transaction. The shares acquired by AAB will be subject to lock-up arrangements through 2021, and voting and standstill agreements, and will be entitled to registration rights.

In addition, an affiliate of Canadian private equity firm Onex and the management team of BBAM will each acquire 666,667 newly-issued FLY shares for $20 million ($15 a share). When added to pre-existing shareholdings by Onex and the BBAM management team, these investors will hold a total of 5.5 million shares, or 17% of the company's pro forma outstanding shares.

The transaction is expected to close in the second and third quarters of 2018, subject to approval by AAB shareholders, receipt of necessary regulatory approvals and satisfaction of other customary closing conditions, FLY Leasing says.

Vedder Price and Jones Day acted as legal advisors to FLY. BNP Paribas, Citi, Commonwealth Bank of Australia and Deutsche Bank have provided committed financing to FLY for the transaction. EY and KPMG acted as tax advisors to FLY.

Credit Suisse, BNP Paribas and RHB are acting as joint financial advisors, and Milbank and ZICO are acting as counsels to Airasia.

FLY sale now unlikely

In an equity research note, Wells Fargo Securities says that an outright sale of FLY Leasing "now seems doubtful".

The San Francisco-based company says the transaction "adds scale" to FL Y's 84-jet fleet worth $3 billion.

The fact that BBAM/Onex are paying $15 per share for a stock that closed at $11.62 may be a positive signal for the deal's ultimate earnings per share (EPS) accretion, the note adds.

Well Fargo Securities describes the deal as "a creative way for FLY to get highly-desirable new A320neos in the near term and potentially at-or-around airline bulk pricing".

However, it expresses concern that with 9/30 book value of $18.95, selling 4.67 million shares at $15 is around 3% dilutive to BV/share.

Also, net leverage goes from 4.2x to about -5x, a level Wells Fargo Securities describes as
"unsustainable".

Finally the deal means that Airasia becomes around 25% of FL Y's customer concentration.