Avolon has agreed to launch Constellation Aviation, a new aircraft leasing and infrastructure investment platform, alongside I Squared Capital and a wholly owned subsidiary of the Abu Dhabi Investment Authority. The three parties announced the venture in early November.
The platform will begin with a seed portfolio of 22 aircraft carrying a current market value of 1.4 billion dollars. That figure is the appraised value of the opening portfolio and is not a statement of the venture's intended size, which none of the parties has disclosed. The aircraft average about five years old and are on lease to 17 airlines across 15 countries.
The lessor will retain a minority equity interest, with no percentage given, and will act as exclusive aircraft manager and servicer to the venture. The infrastructure manager, which describes itself as overseeing more than 60 billion dollars in assets, is the second investor in the structure. The arrangement is supported by a syndicated debt facility from a group of international banks whose size has not been disclosed. It is expected to close subject to securing the necessary regulatory approvals, so it has not completed.
The structure is the interesting part. An aircraft lessor that sells a portfolio but keeps the servicing mandate converts balance sheet exposure into fee income while retaining the customer relationships, which is the model large lessors have used to manage capital intensity for a decade. What is newer is the framing of aircraft as infrastructure rather than as transport equipment, which is what brings a dedicated infrastructure manager and a sovereign investor into the capital stack rather than the specialist aviation funds that historically filled that role.
For the airlines on those 22 leases the immediate change is one of counterparty rather than of terms, since the servicer continues to administer the contracts. The longer consequence is in supply. Capital entering leasing from infrastructure allocators tends to carry a longer holding period and a lower return requirement than opportunistic aviation capital, and if that pattern holds it points to steadier lease rates in the segments the venture targets rather than to the sharp repricing that follows when trading capital dominates.
Ross O'Connor, chief financial officer of the Irish lessor, represented it in the announcement. Gautam Bhandari spoke for the infrastructure manager and Khadem AlRemeithi for the Abu Dhabi fund. The subsidiary through which that fund is investing was not named.
