Thursday, April 22, 2010

Barbarians See Sky Falling: Carlyle Group to Invest in Secured Aviation Debt

The volcanic ash outage in airline service stressed air carrier finances, with an estimated revenue loss of $1.7 billion as of April 20. The total price tag could be more than $2 billion. Banks holding airline secured debt could be nervous. Are they willing to sell out on the cheap to private equity underwriters (PEU's)?

If so, The Carlyle Group and joint venture partner RPK Capital Management are ready to buy, $1 billion worth. FT reported the portfolio:

intends to buy bank debt secured against assets such as jets and spare parts and also various aircraft and engines that will then be leased out to airlines.
IFLC, a division of AIG, traditionally financed leased planes for air carriers. FT reported IFLC is "selling assets rather than extending new financing."

How long has IFLC been for sale? Since fall 2008. Carlyle was a reported bidder in an April 2009 auction.

Apparently, Uncle Sam is depleting IFLC in chunks. PEU competitor Macquarie will pay $2 billion for 53 aircraft.

The Carlyle Group has $1 billion to invest in similar deals. Might they buy assets on the cheap from AIG? Or will frightened banks dump their exposure in the midst of a crisis? Barbarians stand ready to benefit.

Update: Carlyle's interest in the sky stretches to Australia & New Zealand. Thomson reported "Carlyle is interested in acquiring Contract Aviation Industries (CAI) from Airwork Ltd. (NZ)." CAI was planning an IPO, valued at $300 million, when Carlyle came "a courting." One news report stated CAI owns Alliance Airlines, an Australian charter operator. The skies are heating up. Even Carlyle co-founder William Conway weighed in on CAI, which used to be known as Airwork.