Avolon raises level of unsecured funding with $1.25 billion notes issuance
Avolon is issuing $950 million of Senior Notes due 2023 at 4.5 per cent and $300 million notes due 2021 3.625 per cent. Both issuances have been priced at par and will close on or around 25 September. Raised through wholly owned subsidiary Park Aerospace Holdings, the funds are earmarked for general corporate purposes, which may include the future repayment of outstanding indebtedness. Avolon said the offering had been increased from an initial target of $1 billion.

On the same day that it issued the pricing statement Avolon also announced that S&P had upgraded its rating on the lessor's senior unsecured notes due 2022 and 2024 from BB- to BB, with a stable outlook, and maintained its BB+ corporate credit rating. A week before that Moody’s had upgraded the senior secured rating of Avolon's $500 million TLB Borrower 1 facility to Ba1 from Ba2 and the senior unsecured rating of Park Aerospace Holdings to Ba3 from B1. Kroll Bond Rating Agency also published a public review for the first time in which it assigned Avolon an issuer rating of BBB+ and a senior unsecured debt rating of BBB.

The two latest issuances increase Avolon's level of unsecured debt, which includes $1.75 billion of notes due 2022 which were issued at 5.25 per cent last January and $1.25 billion of 5.50 per cent senior notes due 2024.

Immediately after the pricing announcement on the $1.25 billion unsecured senior notes Avolon also revealed it had negotiated a repricing of its senior secured $5.0 billion term loan B-2 facility (TLB-2). This five year facility, originally priced last March at LIBOR plus 2.75 per cent with a LIBOR floor of 0.75 per cent, has now been repriced at LIBOR plus 2.25 per cent. Terms of the TLB-1 $500 million facility also entered into last March are unchanged.

Avolon says that with the $1.25 billion notes issuance, it has raised US$14 billion of total capital so far this year. This includes new equity and new debt, with $9.75 billion of that figure raised in the capital markets. The lessor's CFO, Andy Cronin, says it intends to continue to increase its balance of unsecured funding and to grow its unencumbered asset pool.

Airbus pins A380 hopes on yet-to-happen 'domino effect' in China
Airbus is hoping that Chinese airlines will take between 60 and 100 A380s over the next five to seven years to meet growing traffic demand. This is despite a shift in focus away from the poor selling aircraft towards smaller alternatives such as the A350 and Boeing 787.

According to Airbus China Head Eric Chen: 'When I look at the market flow, the passenger flow, route by route and the economics, I'm fully confident Chinese carriers will need a minimum of 60 A380s over the next five to seven years.' To date Airbus has only managed to sell five A380s in the country, all to China Southern Airlines.

'If one airline takes the lead to order a large number of A380s, the others will follow,' Chen told Reuters. 'I would expect a domino effect and I'm working on it to produce that domino effect that has not happened yet,” Chen said. He admitted though that it would not necessarily be an easy task to win over Chinese buyers. 'A lack of confidence to operate the A380, that is something to work on continuously with the airlines in China,' he said.

Meanwhile, Airbus has inaugurated its A330 Completion and Delivery Centre (C&DC) in Tianjin, China - its first wide-body centre outside Europe - and at the same delivered the first Chinese made A330 to Tianjin Airlines.

Located at the same site as the Airbus Tianjin A320 Family Final Assembly Line and the Airbus Tianjin Delivery Centre, the A330 C&DC provides such aircraft completion activities as cabin installation, aircraft painting and production flight testing, as well as customer flight acceptance and aircraft delivery. About 150 Chinese staff members of the C&DC were trained by Airbus experts in Toulouse.

The new plant comprises a paint shop, weighing hangar and one main hangar with three aircraft positions covering an area of 16,800m2.The A330 C&DC in Tianjin will employ more than 250 people and is designed to deliver two aircraft per month by early 2019.

At end August last the in-service Airbus fleet with Chinese carriers included 1,484 aircraft, of which 1,282 were A320 family and the balance A330 family. The A330 is the most popular wide-body aircraft in China operated by nine airlines, Airbus said in a statement.

Intrepid closes first lessor AFIC deal
Intrepid Aviation has closed its first Aircraft Finance Insurance Consortium (AFIC) backed financing for a 747-8 Freighter on lease to AirBridge Cargo Airlines. It said in a statement the financing was arranged and underwritten by ING Capital LLC and Apple Bank. It is the ninth deal supported by AFIC, which is underwritten by four global insurance companies (Allianz, AXIS Capital, Sompo International and Fidelis).

The transaction represents the first non-payment insurance backed financing ever closed by an operating lessor and further diversifies the company’s banking group with the addition of ING Capita, Intrepid said.

Intrepid Aviation is a privately held commercial aircraft lessor, headquartered in Stamford with offices in Dublin and Singapore, which is owned by Reservoir Capital Group and Centerbridge Partners.

Low cost model may have long-term implications for long haul carriers
The long-term effects of applying the low-cost business model to long haul routes may affect significantly the sector landscape and financial standing of airlines in the long term, according to ratings agency Fitch.

In a report prepared by agency Senior Director Angelina Valavina and Senior Analyst Simon Kennedy, Fitch says the the partnership between Norwegian Air Shuttle (NAS) and easyJet shows the low-cost business model is gaining momentum in European long haul. 'This could eventually lead to similar transformational changes to European network carriers' long-haul markets as it did to short haul,' it says, adding that it does not, however, expect near-term rating actions for affected airlines.

Fitch observes that while NAS is developing low-cost operations on both short and long haul, easyJet and Ryanair are indirectly gaining access to long haul through partnerships. 'easyJet's short-haul passengers will be able to use a virtual platform to self-connect to flights with several partners, including NAS's mainly transatlantic long-haul flights. The service will start at London Gatwick and is planned to expand to other European airports. Similarly, in May Ryanair announced that passengers can book Air Europa's long-haul flights on Ryanair's website.'

The focus on growth and scale is the key driver for these partnerships between low-cost carriers (LCCs), Fitch opines. 'NAS and Air Europa want further traffic to establish sustainable scale in their long-haul operations, whereas both Ryanair and easyJet want access to long-haul connecting traffic to support growth as they have already secured strong positions on short haul. Few international long-haul destinations are large enough to generate sufficient traffic all year round. Therefore, connecting traffic is likely to be required to develop sustainable and sizeable operations.'

Fitch believes that both partnerships in their current form will affect mostly North and Latin American destinations, which are lucrative for European network carriers. 'Among the three largest European network airlines IAG has the highest exposure to this region and therefore faces the greatest risk of long-term disruption. NAS's current operations on transatlantic routes are quite small compared to BA, but it intends to expand long haul rapidly from 12 aircraft in 2016 to 69 in 2019.'

The agency argues that use of new, more cost-efficient aircraft, including the Boeing 787 and 737 MAX, will help drive the development of low-cost long-haul operations. But it adds that the low-cost model on long haul may have some limitations and its profitability is uncertain.

'The short-haul LCC model is based on high fleet utilisation and quick turnaround of aircraft. Achieving these on long haul may be challenging due to time zones, longer ground time and airport curfews. Long-haul operations may also face lower crew productivity if overnight stays are required. These add to costs for long-haul services, shrinking the cost advantage of an LCC.'

It notes that NAS's cost per available seat kilometre advantage over BA was 33 per cent in 2016 compared to the almost 50 per cent achieved by Ryanair. 'NAS does not report the split of its operations by long haul and short haul, and as a result the profitability if its long-haul operations is uncertain. Credit metrics are weak with FFO gross adjusted leverage of 9.9x and FFO fixed charge cover of 1.2x in 2016.'

It is not all one-way traffic, however. All three of Europe's largest airline groups have responded by either launching or announcing plans to launch long-haul low-cost operations. BA's parent company IAG, for example, has established its long-haul low-cost unit LEVEL, which commenced operations from Barcelona but will look to expand to other European cities. Lufthansa has long-haul low-cost operations through Eurowings and Air France KLM also plans to launch a low-cost long-haul airline. In addition, BA's plans to increase seat density on Boeing 777s operating at London Gatwick to 332 from 280 are expected to lead to a lower cost per seat than NAS's Boeing 787s.

Korean investor specialist rebrands as Magi Aviation Capital
UK-based aircraft finance and leasing specialist Magi Partners has changed its name to Magi Aviation Capital Ltd. The firm works closely with the institutional investor market in Europe and Asia, with a particularly strong presence in Korean institutional investor market, it said in a statement. Since 2014 it has closed transactions for debt, finance leases and operating leases totaling over US$1.5 billion and it currently has over $1 billion of aircraft assets under management.

Founder and Partner Peter Vardigans said the new name 'better represents where we are today and makes clearer our business focus and Magi’s role in the aviation industry. Just three years after closing our first deal as Magi Partners, we believe we have established our reputation with a track record of delivery ... We look forward to further developing our origination, structuring and aircraft management capability.'

Seabury hires Turnbull
Seabury Capital has recruited David M. Turnbull as a Senior Advisor to facilitate the firm's expansion of its global product and advisory service offerings in specialty finance, investment banking, technology and software applications.

Industry veteran Turnbull joined the Pacific Basin Board as an INED in 2006 and was appointed Chairman and an Executive Director in 2008. He previously spent 30 years with the Swire Group where he held various senior management positions. He was chairman of Swire’s Hong Kong-listed companies Swire Pacific, Cathay Pacific Airways and Hong Kong Aircraft Engineering Company. He served as Cathay’s CEO from December 1996 to December 2004.

Aircraft Technical Asset Management, Aircraft & Engines Inspections, Aircraft Register and Aviation Regulatory Government Services is one of Seabury Capital’s five key businesses areas.