Orix to buy $2.2b stake in HNA’s aircraft lessor Avolon

August 9, 2018

Japanese financial services group Orix Corp has struck a $2.2 billion deal to buy a 30 per cent stake in aircraft lessor Avolon Holdings as cash-strapped Chinese conglomerate HNA Group Co Ltd trims holdings in its core assets.

The stake purchase in the world’s No. 3 lessor will help Orix to bulk up in the $280 billion global aircraft leasing market, where demand is growing, supported by a rise in low-cost carriers and passenger traffic.

The agreed deal will allow Orix Aviation Systems Ltd, a fully-owned unit of Orix, to gain part control of a lessor that has 562 aircraft, nearly three times its size.

As Orix has no aircraft on order, it can now tap into Avolon’s 300-plus aircraft on order with Boeing and Airbus.

“Big players having access to placement positions over the next number of years and having scale of orders is indeed very important for their success,” Jeremy Meyler, deputy CEO of Orix Aviation, told Reuters in an interview on Wednesday.

The transaction is expected to be completed in the fourth quarter of this year and Orix will get two seats on Avolon’s board.

Avolon is currently fully owned by Bohai Capital Holding Co. Ltd, which is in turn controlled by HNA.

Combining the strengths of Orix’s asset management platform and Avolon’s trading business will help Avolon to grow further, said David Power, CEO of Orix Aviation.

HNA bought Avolon for $2.5 billion in 2015 through Bohai. Avolon then struck a deal to buy the aircraft leasing arm of CIT Group for $10.4 billion in 2016, creating the world’s third-biggest lessor.

U.S.-listed AerCap and General Electric’s GE Capital Aviation Services are the world’s top two lessors.

Over the past year, Avolon has come under scrutiny over its links to HNA and credit ratings analysts have been pressing for tougher safeguards against it being forced to bail out the cash-strapped Chinese conglomerate.

“Our new shareholder structure and the associated enhancements to our governance framework will also accelerate our momentum towards an investment grade rating - a key objective for our business,” Domhnal Slattery, Avolon’s CEO, said in a statement.