Avolon flotation an early present for equity holders

Avolon’s long-awaited flotation on the New York Stock Exchange is primarily designed to allow its equity holders, its initial backers, to take some of their money off the table, as the phrase would have it.

The Dublin-based aircraft lessor, set up by Clare man and former GPA employee Dómhnal Slattery, has signalled that the wait for the stock market launch, originally announced last June, is almost over.

It is likely to go ahead before Christmas and its existing investors will sell 13.6 million of their shares, just short of 20 per cent of the company, earning between $286 million and $314 million for their trouble. There is scope to add to that by two million more shares, earning them another $46 million, if the offer is oversubscribed.

Avolon itself will not receive any of the proceeds. These will go back to the selling shareholders, which include Oak Hill, Cinven, CVC and Singapore's sovereign wealth fund – Government of Singapore Investment Company – which is also known as GIC.

In theory at least, once it is listed on the stock market, the company could raise capital in the future through a rights issue or one of the other means of doing that that present themselves to companies whose shares are publicly traded.

However, it seems unlikely to be doing this at any time in the future. On September 30th, it had total debt approaching $4.26 billion, which it raised to buy aircraft which are now leased out.

It has an order book of $6.5 billion; should it require further funds, it is likely to raise this through borrowing, which is the normal practice in its industry. Its balance sheet at the end of September was strong – total assets were just shy of $6 billion and shareholders’ equity was $1.39 billion.

Its business, leasing aircraft to commercial airlines, generated $376 million in revenues in the first nine months of the year, net income was $104 million and its operations generated $195 million cash.

Given this, debt markets should give it a warm welcome and it is unlikely to be asking shareholders for more cash. It is worth noting that the equity shareholders originally bought into the business for $750 million. It will be worth a potential $1.8 billion following the stock market launch.