Irish aircraft lessor Aergo Capital targets $2bn fleet by year end

CEO eyes 100-plane fleet as firm cashes in on opportunities created by Covid travel bans

Aergo’s fleet now stands at 80 aircraft, according to its chief executive. Photograph: Toru Hanai/Reuters

Aergo’s fleet now stands at 80 aircraft, according to its chief executive. Photograph: Toru Hanai/Reuters

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Irish aircraft lessor Aergo Capital hopes to amass a fleet of 100 planes worth $2 billion (€1.65 billion) by the year end as it cashes in on opportunities created by Covid-19 travel bans, its chief executive Fred Browne said.

Founded in 1999 and now owned by US private equity giant Carval, Aergo buys aircraft and leases them to airlines around the world, earning an income from the rent paid on the planes.

Aergo’s fleet now stands at 80 aircraft, according to Mr Browne. “We are targeting another half a billion [dollars], we hope to finish this year with about $2 billion of purchases,” he adds. That would bring the number of planes it owns to 100.

Mr Browne said the company found itself in an almost unique position in its industry as the pandemic struck at the beginning of 2020. It had spent the previous two years selling aircraft to exploit demand.

“We decided at the end of 2017 that the market was getting way too hot at the buy side, so we reduced the fleet from more than 60 to 20,” Mr Browne recalls.

The aircraft it sold were worth about $1 billion (€820 million), and the disposals left it with 20 assets valued at $700 million (€574 million).

‘Interesting deals’

Like anyone else in its business, the company did not see Covid-19 coming, but the decision to sell many of its planes left it less exposed to the disruption that followed.

Mr Browne notes that it had to manage the impact like any other lessor. “But we spent most of our time looking for well-priced planes, because obviously it’s a very good buying opportunity,” he said.

Aergo has done some “pretty interesting deals”, its chief executive said. Recently, it bought a Boeing Dreamliner, worth about $250 million (€205 million), on lease to Singapore Airlines, raising the cash under rules governed by Sharia law from Dubai Islamic Bank.

It has bought three new Boeing 737 800 Max jets on lease to a North American carrier. Most of the aircraft that Aergo bought are already leased to airlines, most on longer-term arrangements, according to Mr Browne.

However, after spying an opportunity for turbo prop planes, used mostly to fly short journeys, it bought 24 of these aircraft without leases in place.

Aergo bought these from carriers that ran into financial trouble, including one from British airline Flybe, which folded in February last year, making it one of Covid’s first aviation casualties.

Mr Browne said the company now sees further opportunities as air travel continues to deal with the pandemic’s fallout. Aergo is establishing a new unit that will market and manage aircraft left with banks and investors as airlines cut capacity or went out of business.

It has hired David Power, former chief executive of lessor Oryx, and Paul Naylor, former managing director (Europe) for US firm Bristol Associates, to run this business.

Recover

Similarly, Mr Browne predicts that there will be a “very interesting” market for aircraft engine leasing, and has taken on Karl Trowbridge, former managing director of another US company, Aero Turbine, to oversee this.

Mr Browne helped found Aergo with its former shareholder, Irish businessman Denis O’Brien, who sold out to Carval in 2014. The company now employs 33 people, but its chief executive predicts that this will increase to 50 as it continues to expand.

In common with most industry players, Aergo believes that domestic and short-haul services will recover first from Covid’s impact, with long-haul services taking more time, leading to full recovery from 2024.

So far, evidence from the United States and China, where domestic flights are back at full strength, indicates that this is the case. Mr Browne argues that initiatives like the EU digital Covid certificate will be central to reopening travel.

He noted that this is not necessarily new, most African countries require passengers to show “yellow fever passports” before allowing them in.

The aircraft leasing boss warns that the high cost of PCR Covid tests is a major barrier to travel. He calculates that at costs of €150 per test, a family of five heading to the sun could end up having to pay more than €3,000 for the screening required to leave, return and exit quarantines.