On March 3, 2015, Macquarie Group finally signed an agreement to acquire a 90-aircraft operating lease portfolio from AWAS Aviation Capital.
Terra Firma owns a 75% stake in AWAS with the remaining 25% stake owned by Canada Pension Plan Investment Board (CPPIB). Terra Firma and CPPIB are long-time investors in AWAS, both first investing in the company in 2006, and have worked closely to secure the optimal result in this deal.
"We have transformed AWAS since buying it nine years ago, making it one of the top aircraft leasing companies in the world," said Guy Hands, Chairman and Chief Investment Officer of Terra Firma. "AWAS has gone from having 156 aircraft with an average age of 12.1 years in 2006 to 314 aircraft with an average age of 4.9 years in 2014; the book value of aircraft has risen from $2.3 billion to $10.7 billion. Meanwhile, EBITDA has risen from $256 million in 2006 to $1,081 million in 2014."
"Given the nature of the AWAS portfolio and current market conditions, we saw a good opportunity to generate value for our investors through the sale of these 90 young, predominantly narrow-body aircraft. We will continue to grow AWAS in anticipation of our plans to explore appropriate exit opportunities for the remaining business in the coming years," added Hands.
"As a longstanding investor in AWAS, we believe this sale is an excellent opportunity to realize the embedded value in this portfolio of aircraft while still retaining an attractive fleet to serve the needs of AWAS' airline customers around the world," said Mark Jenkins, Senior Managing Director and Global Head of Private Investments, CPPIB. "Together with Terra Firma, we look forward to working with the management team to continue growing the AWAS business."
Commenting on the transaction, Ray Sisson, President & CEO AWAS, said: "Terra Firma and CPPIB have worked with us to reengineer AWAS into a world-class commercial aircraft leasing platform with over 100 airline customers in over 45 countries. Today our business is known around the globe for innovation and a dedication to customer service delivering customised solutions. The sale of this 90 aircraft portfolio is part of our strategic plan and will allow us to move into our next phase of planned growth."
The portfolio is comprised of 90 modern, current-generation commercial passenger aircraft leased to 41 airlines, with a purchase price of approximately US$4 billion, with the capital requirement of A$600million. The weighted average age of the fleet is approximately two years with an average remaining lease term of 6.5 years. Completion of the transaction is expected to occur over the next 12 months, subject to customary closing conditions. While the commercial terms of the transaction are confidential, the transaction will be funded from existing cash reserves and third-party limited recourse financing arrangements.
Macquarie Group has confirmed that it will conduct an institutional placement to raise A$500 million towards the purchase. The acquisition is expected to be both earnings per share (EPS) and return on equity (ROE) accretive, taking into account the impact of the capital raising.
Settlements for the aircraft acquisitions are expected to occur progressively over the next 12 months and are subject to customary closing conditions.
The portfolio, 90% of which is made up of A320-200s and 737-800s, with one A330, will become part of the aircraft operating lease division of Macquarie’s Corporate and Asset Finance group (CAF), which has $29bn in assets and loans under management across a range of sectors, including aircraft, motor vehicles, mining equipment, rotorcraft, and corporate and real estate lending. Its aircraft operating lease portfolio currently comprises 130 aircraft.
Macquarie’s Head of Transportation Finance, Stephen Cook said: “This transaction allows us to acquire high quality assets. It complements our existing aircraft leasing portfolio and diversifies our client base. In the many years that Macquarie has been active in aircraft leasing, we have been privileged to work with some of the world’s leading airlines.”
Macquarie Group Chief Executive Officer Nicholas Moore said: “This acquisition builds on the strong growth of our Corporate and Asset Finance business and the ongoing investment in our annuity-style businesses.”
Goldman Sachs and Deutsche Bank acted as financial advisors to AWAS. Milbank acted as legal advisors to AWAS. Vedder Price advised Macquarie Group on the AWAS acquisition and the third-party funding arrangements.
“This is one of the largest and most complex transactions currently in the transportation finance marketplace,” said Dean N. Gerber, Chair of Vedder Price's Global Transportation Finance team. “We are honoured to partner with our long-term client, Macquarie Group, in this substantial acquisition.”