Aircastle sells 15.25% common shares to Marubeni
On June 6, Aircastle entered into a definitive agreement with Marubeni Corporation for the issuance of approximately 15.25% of the lessor’s common shares, after giving effect to the issuance, at a price of $17.00 per share, for gross proceeds of approximately $209 million. The closing of the issuance is expected to occur during the second or third quarter of 2013, subject to customary closing conditions.
DVB acted as advisor to Marubeni, while Goldman Sachs advised Aircastle.
Ron Wainshal, CEO of Aircastle, says: “We are delighted to welcome Marubeni, one of Japan’s leading trading companies, as a strategic, long-term oriented shareholder. With this equity investment, Aircastle will be well positioned to take advantage of exciting growth opportunities and to leverage Marubeni’s global presence and network to expand into new markets, business opportunities and funding sources.”
In connection with the transaction, Aircastle and Marubeni also entered into a shareholder agreement that will become effective upon the completion of the issuance. At such time, Marubeni will have the right to designate two directors for appointment to Aircastle’s board of directors. The shareholder agreement also contains certain provisions relating to Marubeni’s and its affiliates’ ability to transfer and acquire Aircastle’s securities.
The proceeds of the sale are likely to be used for Aircastle to fund more aircraft using purchase and leaseback products.
This is a great deal for Aircastle since it represents a primary capital that is at a premium to its last trade, which is usually sold at a discount.
The size of the Aircastle common stock sale is also significant. Since the average size of a common stock sale is usually judged on its average trading volume, for a company like Aircastle with a $2bn market capitalisation, issuing $200 million of common stock is a substantial achievement, especially since it was sold at a premium.
From a macro perspective for the aviation sector, the deal shows that there continues to be very strong momentum from the RBS Aviation sale to SMBC in terms of Asian interest.
The current state of play in the global airline market
Airline share prices have risen 15% so far this year, outperforming world equity markets. Q1 financial results show operating profits are continuing to improve across most regions while jet fuel prices were flat at $115/b range in May. Passenger travel continues to expand but air freight volumes show no signs of growth. Business confidence has flattened off in 2013 while passenger capacity has been expanding in April/May as aircraft are brought out of storage; we know this as there was a dip in new deliveries during April and May. Capacity growth remains broadly in line with demand growth though with load factors high, close to record levels in fact, but freight loads are slipping further during calendar H1 2013. Passenger yields have stopped growing in local currency terms, but remain close to recent highs.
IATA has increased its forecast for 2013 industry net profits from $10.6bn to $12.7bn. It says that the main reason for the upgrade is further evidence that there has been a structural improvement in airline financial performance. This is set against a backdrop of GDP growth that has been revised down to 2.2%; oil prices remain high but have been revised lower to $108/b, which is seeing shares increase. The largest improvements in the IATA forecast are in North America and Europe, where airlines have benefited from recent changes. Asia-Pacific airlines continue to generate the highest margins and largest profits, but have deteriorated since 2011 and continue to suffer as cargo markets weaken.
And what about Fastjet?
After posting a $56m-odd loss this week, many critics have stated that their business plan is in trouble with the key shares held in Fly540 Tanzania and Ghana, that is of course unless current investors are willing to take on the burden. The business plan was and remains a pioneering one but there seems to be a distinct problem with the fact that the airline is based in Gatwick in the UK and not on the ground in the countries of operation. Of course hiring the right people would be a terrible pain and dealing with local authorities would be a joke but at least then the airline would not be seen as another outside operator. This of course lends itself to Fastjet having to partner-up with other local airlines/flag carriers in order to expand.