AXON Aviation Group: Leasing business jets
AXON discuss their entrance to the market and what it’s like to play matchmaker in the corporation aviation world.
Although operating leasing is an extremely popular way of financing business jets in the US – and common with commercial aircraft – it happens far less around the rest of the world.
AXON Aviation Group wants to change this. As a new company with its head office in the heart of Mayfair, London, AXON is effectively a matchmaker, placing unwanted jets with people that want them for a short amount of time.
“We take an aircraft from an existing owner or an institution and lease it out for one to three years,” says says Kurosh Tehranchian, chairman. “On the other side, we find a lessee who has a need for an aircraft for a couple of years. Perhaps, he’s waiting for his own aircraft to be delivered, or perhaps he’s not ready to fully commit to buying an aircraft. As far as we know, there are very few people doing what we are doing.”
Like all matchmakers, AXON relies upon its contact book. The management team all have years of experience in business aviation. Tehranchian and founding partner Niki Rokni launched UK operator Ocean Sky before selling their shares in 2009 (Ocean Sky went into liquidation in September 2012). Guy Burden, another founding partner, sold aircraft for British Aerospace Corporate Jets and Bombardier Aerospace. There is also a charter team headed by Gordon Pearce, formerly of Ocean Sky as well.
Many of the team’s past customers are from Russia and the Middle East and AXON’s most recent deal was the sale of an Airbus ACJ 319 on Friday 5 October. So far, the company has closed leases on six aircraft in 2012. Since launching, AXON has structured lease transactions on a Bombardier Global 5000, a Challenger 605, two Challenger 604s, a Gulfstream IVSP, a Falcon 2000EX and a Challenger 300.
Tehranchian describes AXON’s leasing model as similar to renting out an apartment. The lessee pays the owner, who retains responsibility for making payments to the bank. AXON takes a commission either from the owner or the lessee. In the event that the owner defaults on the payment – regardless of whether or not they have received the money from the lessee – the aircraft is repossessed by the bank as normal.
“What we’re giving the client is a rental” says Tehranchian. “The legality is exactly the same. If they want to do charter, they can apply for an AOC; if they want to fly privately, they can do that too. It’s exactly the same as owning the aircraft.”
Advantages for the lessee
Leasing an aircraft offers you the same benefits of owning an aircraft, but without the long-term commitment. “The difference is that with owning aircraft, you only feel the hit when you sell the aircraft, whereas with leasing, it’s almost as if you’re paying for the aircraft’s depreciation every month,” says Tehranchian.
As a lessee you also know the pilots, the cabin attendant and you can take comfort that the aircraft is always sitting on the ground, waiting for you.
Compared with charter, Tehranchian admits that the financial benefits of leasing an aircraft are limited and only really worthwhile if you are flying more than 200 hours per year.
“With charter, it’s a very cost effective way of doing things, but there is an inconvenience because every single time you have to ask for a quotation and you’re never sure of the operating company or of the pilots,” says Tehranchian.
Advantages for the lessors
At the other side of the transaction, an owner might want to lease out their aircraft, because they do not want to sell it into a buyer’s market, because they are finding it almost impossible to sell the aircraft in the first place, or because their business habits have changed and they no longer need the aircraft for as many hours as they used to.
“We have cases where an owner is only using his aircraft for 50-100 hours a year. So, he leases it out, but in effect, he gets a block contract charter with the new lessee for so many hours at a pre-agreed rate. The lessee keeps first priority and pays less than he would on the open market,” says Tehranchian.
“In reality, most owners are hoping that they will get the aircraft back in a year or two and will be able to carry on using it,” he adds. “Selling your aircraft is very visible at this sort of level and it can send the wrong signals. Also, in a lot of cases, if you sell an aircraft you may not end up with much equity coming back to you.”
Types of lease
AXON offers two types of lease; a dry lease, where the owner supplies the aircraft without crew or maintenance and receives a monthly payment from the lessee, and a wet lease (also known as a ACMI lease), where the owner supplies an aircraft along with crew, maintenance and insurance and continues to operate the aircraft for the lessee, with payments made on hourly basis (excludes fuel, catering, landing fees, handling).
“Most people actually ask us for a wet lease,” says Tehranchian. “We felt when we started out that dry leases were going to be very popular, but actually, our clients want the ability to fly around without all the headaches.”
Meet the AXON Team
Kurosh Tehranchian, Chairman
Tehranchian sold an IT company in 1999 and a pharmaceutical company in 2002, before moving into private jet aviation. Along with Niki Rokni, he founded Aircraft Zone in London in December 2003. In January 2006, they raised $12 million in investment and rebranded it as Ocean Sky, establishing their own AOC and beginning operations with two Bombardier Challenger 604s. When he and Rokni sold their stake in December 2009, the company operated 34 aircraft, employed 325 people, offered private jet maintenance and owned FBOs in the UK and Spain.
Niki Rokni, Founding partner
Rokni (pictured with Burden and Tehranchian) has worked in the aviation industry for over 18 years. A co-founder of Ocean Sky, Rokni was also responsible for sales and marketing. Her most high profile deal involved Ocean Sky featuring as a private jet company in the 2008 James Bond film Quantum of Solace.
Guy Burden, Founding partner
A former executive with British Aerospace Corporate Jets and Bombardier Aerospace, Burden worked in Europe, North America, Brazil, the Middle East and Asia-Pacific. At Bombardier, his highlights included exceeding sales targets by 40%.
Gordon Pearce, Charter sales manager
Having only ever worked in aviation, Pearce worked as a charter broker for Ocean Sky in London, after working with military aviation in the Middle-East. He has since booked flights for heads of state, medical emergencies and celebrities, and fully understands the complexities of the charter business.