Pandemic provokes shift as Asset Managers seize opportunity in aviation due to traditional lending downturn.
Due to a combination of market volatility, high-interest rates, and pressure on fees, the asset management industry is predicted to undergo a significant consolidation by 2027, with around 16% of existing companies either exiting the business or being acquired by larger entities, according to a PwC survey. Amid the challenging economic climate, the number of firms seeking new investment opportunities has surged. AIP Capital – a global aviation asset management and investment firm – argues that increasingly investors are identifying unique opportunities within the aviation industry as finance managers source lucrative opportunities originating from the pandemic’s hardships and ongoing supply chain disruptions within the sector.
As the aviation industry recovers, with an estimated 4.35 billion people expected to travel in 2023 – closing in on the 4.54 billion who flew in 2019 – airline industry net profits are expected to reach $9.8 billion in 2023, which is more than double the previous forecast – asset managers are expected to reap the rewards.
Airlines, particularly those at a point of nascency, are seeking to shield their balance sheets from further debt and are increasingly opting for leasing and sale-leaseback arrangements for aircraft, as opposed to outright purchases. According to Jared Ailstock, Managing Partner of AIP Capital, this model empowers airlines to mitigate their financial risks and enables their growth in markets dominated by legacy carriers, while also providing private equity firms with a profitable investment opportunity.
Historically, banks have dominated the arena of aviation financing, yet with the retraction of these traditional lenders’ support throughout the years of the pandemic, private equity firms are seizing the opportunity to enter the fold, purchasing the new planes originally ordered by airlines. This move indicates a big shift in aviation financing, a recent report published by Spherical Insights LLP expects the global aviation asset management market size to grow from USD 177.79 Billion in 2022 to USD 288.34 Billion by 2032.
Launched in May 2023, AIP Capital has already built a $1.6 billion portfolio encompassing 30 aircraft, with another 68 Boeing 737 Max models on order. Its activities include aircraft management, operating and acquisition finance, and private credit investing, and currently has an additional $2.6 billion of capital deployed in investment grade, high-yield and distressed aviation credit. The AIP Capital team has a successful track record of leveraging relationships and a unique investment approach to deliver outsized returns on assets, with previous aircraft investments totaled approximately $5 billion across 119 assets.
Jared Ailstock, Managing Partner at AIP Capital has commented on why investors are increasingly turning to aviation:
“There is a lot of really different and attractive ways to get yield in the environment we are living in right now. I think a lot of people have looked at different parts of that market and said ‘Well, the risk/return in X, Y, Z investment is way better than aviation’, and I think some of those participants wouldn’t have said that a couple of years ago.
“Where we have seen success are folks that have either been coming into the space for the very first time, because they view the entry point as being a lot more attractive today because there isn’t as much equity in the space, or guys who have been able to weather the storm and they view aviation as a core part of their strategy and they will continue to deploy equity throughout various cycles.”
A Team of Aviation Experts
The AIP Capital team of 15 professionals across finance, technical, legal and underwriting functions was assembled with agility in mind. The company was built to move fast and take advantage of accelerated opportunities in the post-pandemic aviation industry. This vision is reflected in AIP Capital’s leadership, including its Co-founders and Managing Partners Mathew Adamo and Jared Ailstock, who have nearly 30 years of combined aviation experience.
Before founding AIP Capital, Adamo served as Managing Director of Aviation Investing at Castlelake L.P. and Chief Investment Officer for Jackson Square Aviation. 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. Both have extensive experience managing multi-billion-dollar aviation asset portfolios and transactions.
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