Following its official launch in April 2024, aircraft lessor Phoenix Aviation Capital – exclusively and wholly managed by AIP Capital (AIP) – has made waves in the aviation world, with a bespoke privately placed structured enhanced equipment trust certificate (EETC) financing, closing
in August.
Phoenix Aviation Capital’s $242 million structured EETC financing, Phoenix Aviation Capital Series 2024-1 EETC (PAC 2024-1), is comprised of two tranches: $205.2 million Class A notes and $39.9 million Class B notes. The Class A notes have an initial loan-to-adjusted base value (LTV) of 57.9% and the Class B notes have an initial LTV
of 68.3%.
The proceeds will be used to finance a portfolio of seven new 737 MAX 8 aircraft across two lessees – EastarJet and LOT Polish Airlines. The aircraft in the portfolio have a weighted average age of approximately one year and a remaining lease term of around 10 years.
AIP acts as servicer for the transaction. Citigroup Global Markets is the sole structuring agent and joint lead placement agent and Citibank is the trustee, security trustee and operating bank. RBC acted as joint lead placement agent. Gibson, Dunn & Crutcher and McCann Fitzgerald provided legal counsel to AIP and Phoenix.
This was a privately placed transaction, which “garnered substantial interest” from investors. On a blended basis, the deal priced with a spread to US Treasuries of 344 basis points (bps) with a blended yield of 7.311%.
“We are pleased with the strong investor interest in this transaction, which we believe speaks to our servicing capabilities and deep expertise in the aircraft leasing sector,” said Jared Ailstock, managing partner at AIP. “Investors will benefit from the attractive collateral of in-demand, liquid, narrowbody aircraft in addition to structural enhancements designed to provide further downside protection.”
In addition to the 737 MAX 8 collateral, PAC 2024-1 includes additional structural features that are unique to this transaction. The enhancements include features such as allocating maintenance income to be used towards required maintenance expense top-ups based on a 24-month look-forward schedule, an excess reserve account where available maintenance income funds will be used towards required excess reserve top-ups based on a predefined targeted balance schedule, an expense account, which can be used towards paying any senior expenses.
On its launch, Phoenix Aviation Capital noted that its initial portfolio would be comprised of new generation aircraft on long-term leases to a diversified customer base of airlines.
Phoenix was formed in April 2024 by global aviation asset management firm AIP Capital. Phoenix is owned 100% by a US-based insurance and financial services holding company with approximately $11 billion of assets under management, which also acquired a 49% stake in AIP with AIP’s management team continuing to own a 51% majority. No other shareholders are involved
in AIP.
Phoenix is managed exclusively by AIP and benefits from AIP’s experience in aviation and leadership, including Mathew Adamo, managing partner at AIP, who also serves on Phoenix’s Board and is directly involved in the guidance, execution and oversight of its growth strategy, who held previous roles as managing director of aviation investing at Castlelake and chief investment officer for Jackson Square Aviation. Co-founder Jared Ailstock was previously managing director and head of aviation – business development & capital markets at Castlelake and held positions in structured finance at both Goldman Sachs and Credit Suisse. In addition to Adamo, Vincent J. Cebula also serves on Phoenix’s Board. Cebula has a decades long history as a director, operating advisor and investor in special situations, including over 35 years of experience in private equity, investment banking and operational restructurings. Cebula has served as a director to over fifteen public and private companies during his career as an investor and independent consultant.
AIP, founded in 2023, is comprised of 27 professionals in Dublin, Ireland, Stamford, Connecticut, and Singapore.
AIP is a registered investment adviser with the US Securities & Exchange Commission (SEC), which Ailstock says was a conscious decision. “Very few businesses in our sector and of our size decide to register with the SEC. But we knew we would grow quickly. We have a fleet value of approximately $3 billion, 27 employees, three offices, we are scaling at a decent rate. In our view, being a registered investment advisor provides our investors with comfort and confidence in our business, which also allows us to access more products in the private credit space.”
The ultimate goal for Phoenix will be to secure its own long term credit rating that will allow the leasing company to access the public debt markets. Until then, the privately placed EETC structure offered an ideal financing solution for the portfolio of seven MAX aircraft. “Without a rating, we needed to explore different opportunities in the private placement market,” says Ailstock in an interview with Airline Economics. “This is a really efficient way to finance the seven MAX aircraft. “The paper was sold to buy-and-hold insurance companies – so very conservative longer-term investors. We believe, this is a marquee deal for Phoenix.”
AIP has been steadily building up its portfolio over the past year. In June 2023, AIP closed a minority investment and joint venture agreement with Korean consulting and investment firm, Dreamstone Aviation Partners (DAP), to allow the company to better expand in the Korean market. AIP holds ~30% of the shares in DAP and is on the board of directors. A month later, AIP closed an LP investment in a VIG Partners (VIG) fund which holds a controlling investment in Korean low-cost carrier, EastarJet, and placement of five new Boeing 737 MAX 8 aircraft. Two aircraft delivered to EastarJet in August with one more in September and a final two are due in the third quarter 2024. At the time, Changhoon Shin, managing partner of VIG commented: “We are pleased to establish and build our relationship with AIP through this large transaction. Five aircraft for EastarJet will be the foundation of the airline’s network and allow us to initiate substantial growth with the operational efficiency of the Boeing 737 MAX.”
AIP had a prior affiliation with 777 Partners, however, AIP and Phoenix are now fully separate from and have no connection to 777 Partners. Going forward, Phoenix is continuing to deliver on its aims to secure additional, long-term growth through sale-and-leaseback transactions with global airlines along with acquisitions from other aircraft leasing companies.
Ailstock said that the team had been very active since the launch of Phoenix earlier this year. “In addition to the 30 aircraft contracted under the Boeing purchase agreement – which are delivering between 2025 and 2027 – we have an LOI for an additional two 787s and one A321neo,” he shares. “The goal of Phoenix is to keep investing in all next-generation aircraft types that complement the Boeing orderbook.”
The team aims to grow the Phoenix portfolio to 75 aircraft at a minimum, which can be achieved by upsizing the Boeing orderbook – it holds options for an additional 30 737 MAX 8s – as well as secondary purchases and sale-leasebacks. “The secondary market is showing some really interesting opportunities right now,” says Ailstock. “The benefit of that channel is receiving the assets straight away rather than waiting for OEM deliveries. We are weighing all of those options at the moment but we want to ramp
up quickly.”
Ailstock notes the delays in deliveries from Boeing but says the company is less challenged than some larger airlines that have near term positions. “We’d like to get the aircraft on time, to hit our growth targets,” he says, adding that the team has confidence that its “great partner Boeing” will work out the issues in time. “The delays aren’t having a material impact on Phoenix right now,” he says, “and we are supplementing our growth via secondary purchases. We’d like to get our aircraft sooner but we have a lot of trust that Boeing will figure it out.”
Phoenix is entering a saturated marketplace – particularly for lessors offering new next generation narrowbody aircraft where it will compete with large, investment grade rivals that have a very low cost of capital. “We don’t have the benefit of investment grade cost of funds,” notes Ailstock, “so we are a different player but we intend to find the right opportunities that make sense for us. There are not enough aircraft to meet airline demand right now so we have the chance to find those sweet spots for our funding partners that also works for our airlines customers.”
Phoenix’s existing airline customers include EastarJet in South Korea, LOT Polish Airlines as well as Flair Airlines, which Ailstock says has vastly improved its credit standing.
Phoenix and AIP are able to offer more creative financing structures for clients, which Ailstock sees as a real positive for the company in the crowded marketplace. “We can be more creative on structures and offer much more than a pure play leasing company. We offer finance leases as well as operating lease thanks to our private credit business
at AIP.”
AIP operates and invests in three distinct business verticals. These include servicing aircraft assets via management of Phoenix, Aviation Asset Investing, and Private Credit.
AIP’s Private Credit business, through its global origination capabilities and long-term investor relationships, provides tailored financing solutions secured by aircraft and non-aircraft collateral to airline customers around the world. Michael Kittle serves as Managing Director of Private Credit, for AIP and is based in Dublin. Prior to joining AIP, Mr. Kittle worked for the Carlyle Group, designing, building and scaling their aviation lending platform from their office in Dublin. Before joining Carlyle, he spent seven years at DVB Bank in their Frankfurt and London offices both on the origination team covering clients in Europe and Central Asia and as Deputy Head of Credit, managing their lending portfolio.
With such experience, Mr. Kittle and the private credit business can offer direct lending, pre-delivery payment (PDP) financing, and more structured types of financing using varied collateral from aircraft and engines to spare parts and slots, gates, and routes. “We can look at everything,” says Ailstock. “Our private credit business is underpinned by our partners in the insurance space, which have a large appetite for these sorts of products. This is an origination and buy-and-hold strategy for us, which sets us apart from many other players in the sector.”
In August 2024, AIP completed a $240 million debt financing to a wholly owned subsidiary of ITA Airways (ITA) through its private credit strategy. The $240 million debt financing is secured by three 2024 Airbus A330-900neo aircraft with Rolls-Royce Trent
7000 engines.
Ailstock says the company is able to be more flexible on credit risk since as a new company it has now legacy investments that were contracted in the low interest rate-low lease rate period, and it is not “overconcentrated on any names”. It is likely that the market will see many more transactions from AIP before the end of this year.