L.A. billionaire Udvar-Hazy's aircraft leasing firm preps IPO for next week
Next week, Los Angeles billionaire Steven Udvar-Hazy's new aircraft leasing venture is headed for a multimillion-dollar arrival on the New York Stock Exchange.
Century City-based Air Lease Corp., started last year by industry pioneer Udvar-Hazy, is set to go public with a stock offering that will fuel the company's buying power to add to its fleet of new passenger jets.
The deal also will boost the company's ability to take on larger global competitors, including Udvar-Hazy's former firm, International Lease Finance Corp., owned by insurance behemoth American International Group Inc.
Air Lease, or ALC, could sell as many as 28.75 million shares of Class A common stock at $25 to $28 a share, raising as much as $805 million. The company will list on the NYSE under the symbol AL.
In its roadshow presentation for the IPO, the executive team said it intends to use the money raised to fund acquisitions of commercial aircraft and for general corporate purposes.
ALC already has 46 aircraft and anticipates that its fleet will grow to about 100 planes by the end of the year.
“In the leasing business, the more planes you have, the higher your revenue is going to be,” said Nick Einhorn, analyst at IPO tracker Renaissance Capital in Greenwich, Conn.
ALC’s business is similar to leasing an automobile. ALC leases planes to airlines and then sells or re-leases them after a fixed period. Airlines like leasing because they can get new planes at a lower cost than buying them outright.
For ALC, it buys planes in bulk and gets the kind of discounts few airlines can get on their own.
According to ALC’s prospectus for the IPO, the start-up has announced deals to buy 153 new aircraft and 10 additional used aircraft through 2017.
Einhorn believes that ALC's annual earnings could reach more than $1 a share within two years as long as “the company follows its plan.”
One of the company’s biggest risk factors is that it borrows heavily to fund its purchase of aircraft. “They will add more debt as they grow,” Einhorn said, noting that ALC has nearly $900 million in floating-rate debt. “A rise in interest rates could hurt their profitability.”
ALC may be just a year old, but its executive team has been in the aircraft leasing business for more than 30 years. Udvar-Hazy, 65, launched ALC in February 2010, less than two weeks after he left his former business, International Lease Finance Corp., or ILFC.
Udvar-Hazy co-founded ILFC in 1973 and built it to be the world’s largest airliner-renting enterprise. He became a billionaire and one of the richest men in Los Angeles when he sold ILFC to AIG in 1990. AIG allowed him to continue running the company.
But in 2008, AIG was on the brink of collapse and received commitments of up to $182.5 billion in bailout money from the federal government. As part of the bailout, the government began overseeing AIG operations, including that of ILFC, which Udvar-Hazy said hamstrung his ability to manage the company. Fed up, he left the company to start ALC.
Udvar-Hazy set up the company’s new office down the street from ILFC’s posh headquarters at MGM Tower in Century City. He made phone calls to his contacts at airlines and jet manufacturers, raised capital from investors including Ares Management and financier Wilbur Ross, and recruited top ILFC executives -- along with their Rolodexes.
ALC now has just 36 full-time employees, many of whom have personally invested in the company to the tune of $90 million, Udvar-Hazy told potential investors at the roadshow. ALC officers and directors will own 37% of the stock after the IPO.
The company will be a small player compared with leasing giants ILFC (which has a fleet of about 930 aircraft), GE Capital Aviation Services and large foreign competitors.
But ALC is going public at a time when passenger totals and the percentage of airplane seats that are filled have increased for 12 straight months for the nation's largest airlines. The latest data from the Bureau of Transportation Statistics show that U.S. airlines carried 53.7 million passengers in January, up 2.2% from a year earlier.
"We believe that we entered the aircraft leasing industry at an opportune time, as both airlines’ use of net operating leases and the demand for air travel are expected to grow in the near future, consistent with a trend of growth in air travel over the last 40 years," the company said in its prospectus.
It also said it will focus on emerging markets in Asia, Africa, Latin America and the Middle East where fast economic growth is driving air traffic up.
As a start-up business, "it all comes down to how much faith investors put on the company’s executive team,” Einhorn said.
-- W.J. Hennigan
Photo: At top, Air Lease Corp.'s CEO Steven Udvar-Hazy Credit: Lai Seng Sin / Associated Press. Below left, Air Lease President John L. Plueger, left, with John Leahy of Airbus and Udvar-Hazy, announce the start-up's multibillion-dollar deal to buy 51 Airbus airliners in July 2010. Credit: Airbus