Global Jet Capital rethinks aircraft remarketing and aims to simplify ownership
It is not unusual for financial institutions to own aircraft that are for sale at trade shows. Leases end and sometimes aircraft need to be repossessed. But it is not something they typically advertise. At NBAA 2017, Global Jet Capital has changed all of this. It is actively marketing four of its aircraft – including a Lineage 1000 on the static. The financial institution has also placed them with operators so they are ready for their next customers.
Global Jet Capital is backed by GSO Capital Partners, The Carlyle Group and AE Industrial Partners, and has a $2.5 billion aircraft portfolio. It launched in 2014 and, in January 2016, bought aircraft worth $2 billion from GE. As well as growing its portfolio, its new asset management division is busy managing these aircraft.
The financier hired Ben Murray as senior managing director for asset management in December 2012. He had run Landmark Aviation’s aircraft management division (where he worked with Shawn Vick, Global Jet Capital’s CEO). The division has eight people.
“We closely monitor every aircraft in the portfolio – especially ones nearing the end of leases,” says Murray. “There is a lot of life left in some of these aircraft and when an aircraft comes back into our inventory we will work with our finance group and the rest of the organisation to develop a plan and a budget for it. This includes working out what is the capital investment required to make it a more attractive asset to be released or sold.”
A key part of this is what Global Jet Capital is calling its aircraft manager partnering programme. Most financial institutions park returned aircraft and appoint brokers to sell them. Global Jet Capital is instead selecting management companies and asking them to charter the aircraft out – which means they are hiring pilots. The aim of this is to get the aircraft in front of prospective buyers rather than make money from charter – but Murray says that so far it has actually been profitable. It also means that prospective customers know that it is possible to get some charter revenue.
“This has been incredibly successful so far,” says Murray. “Each month we have been doing this has resulted in great lead generation.”
He says that the other advantage is that the aircraft is ready as an immediate turnkey solution for buyers.
The Lineage 1000 on the static display was returned by a Mexican customer at the start of the summer. Global Jet Capital imported the aircraft into the US, repainted it and refurbished some of it. It is now giving the aircraft to Comlux to manage. Comlux is placing the aircraft on its Maltese Aircraft Operator’s Certificate and basing it at London Stansted for charter.
“I spoke to about ten operators about managing the Lineage for us and met with several at EBACE but it was not even a two-horse race,” says Murray. “Comlux showed us they have experience of dealing with lots of aircraft like this and the ability to put it on the attractive Maltese registry, and they understood the idea of a partnership with us.”
Murray says that they believe that basing the aircraft in Europe will make it easier to find a customer.
“We have accumulated a wide experience in managing ultra large cabin VIP aircraft and our knowledge of this market is an asset for Global Jet Capital,” says Andrea Zanetto, CEO of Fly Comlux. “This is just the beginning of our relationship with Global Jet Capital, as the goal is to continue this partnership in the future with other aircraft that are in their portfolio.”
Global Jet Capital also has three other aircraft parked at Henderson Executive Airport during NBAA. These include a GV that it took back early from a large US corporate that is now operating a Global Jet Capital financed G650; a Citation X that is being operated by Jet Linx; and a Hawker 400XP with a new interior and WiFi branded in Global Jet Capital’s colours.
All four aircraft are available to charter and lease, and are also for sale. The fact that aircraft could be sold is a risk for operators. “The problem for us is that you have to do so much work to put an aircraft onto a certificate and it is not worth it if the aircraft is sold after a few months,” says one operator.
Murray says that Global Jet Capital has had strong interest from other managers and is looking to establish long-term relationships around the world.
His team is also selling its aircraft directly without brokers. Most banks work closely with financial institutions and at GE Capital some 70% of enquiries for financing were driven by aircraft brokers.
“It is a new market,” says Dave Labrozzi, chief operating officer of Global Jet Capital and former head of GE Capital Corporate Aircraft Finance (he joined after it acquired the portfolio). “In today’s world, there is so much that we need to do that we need a direct dialogue with customers. We are not looking to underwrite billions of dollars of loans, we are looking for the right investments.”
Global Jet Capital also encourages owners to place engines and auxiliary power units (APUs) on maintenance programmes. This helps protect the assets but also simplifies ownership.
“The users of aircraft are more and more looking for a dedicated aircraft lift solution. It is no longer entirely about having to own an aircraft – when they get in, it is their airplane,” says Labrozzi.
Murray stresses that Global Jet Capital also wants to help customers throughout their lease. “When a new client steps into a lease, our asset management team can also help them,” he says. “Because we have an experienced team with strong rolodexes, we can help them with things like pre-buys, airworthiness directives and avionics upgrades. We have effectively become the Global Jet Capital 1-800 helpline for any customer. It is part of the service so they are not just out there on their own, wondering what to do with the asset.”
Global Jet Capital is the first international financier to offer this service. CEO Shawn Vick says it is partly because its shareholders look at aviation differently.
“This is where we are highly differentiated from other financial institutions,” he says. “With our asset level of expertise, we can deliver a completely different level of service to other institutions. We can be there to help. If ADs are issued, we can help our customers think through things so they remain compliant and updated and operating the aircraft they should be operating.”
Global Jet Capital last week also showed how it views business aviation differently by investing in Stellar, an online business jet charter marketplace.
Growing Global Jet Capital
As well as the GE portfolio, Global Jet Capital has also added new aircraft worth more than $1 billion in 2016 and 2017. Some 75% of these are operating leases. About 45% of all the aircraft are outside the US.
Labrozzi says that the company is on track to more than double the new deals it closed in 2016. “We have hired really deep and multi-faceted people all over the organisation. It is not just the sales guys, we also have great people in customer service and asset management. We have placed originators in all the major global markets and we are seeing the results of that activity.”
He says there are two reasons why the business is growing. First, not being a bank is a big advantage. “We do not require customers to hold deposits. So we are not effectively lending our clients their own money at ridiculously low rates.” Although he does stress that Global Jet Capital complies with relevant regulations.
Labrozzi also feels that his sales team have done a good job educating customers on the advantage of operating leases. “I was in Europe last week and a gentleman said: ‘I will never ever own a corporate jet again as long as I live.’ He will continue to use them but says he is never going to own them. You are seeing people and companies that have owned aircraft forever look at leasing.”
Global Jet Capital is seeing a lot of interest from customers that replace aircraft every three to five years, as many of them had not allowed for depreciation. It also believes that new accounting rules will push corporates from synthetic leases into true operating leases.
It has closed deals for new entrants as well as for experienced owners.
Labrozzi says that Global Jet Capital is happy to release aircraft at the end of terms, allowing it to manage residual value risk.
“There are some really great ten-year-old airplanes in our portfolio, which will live for another 15 years or 20 years and that we can find another client for. And then when it comes back, we may find another owner. It is a financial decision at that time. If it makes sense to sell it, we will but it is very much on a case-by-case basis.”
Which means that Global Jet Capital is probably set to become a regular exhibitor on the static display.