On Tuesday, Dubai Aerospace Enterprise (DAE) announced it had agreed a definitive agreement to acquire 100% of rival leasing firm, Nordic Aviation Capital (NAC). Prior to its restructuring NAC was the world’s largest regional aircraft lessor but the firm has since been transitioning to narrowbodies. Terms of the transaction were not disclosed.
DAE has managed to beat several US PE firms who were rumoured to be eying the NAC portfolio including HPS Investment Partners, Cerberus Capital Management, and Davidson Kempner, who were rumoured to be in the final stages. Ishka understands that Goldman Sachs and Deutsche Bank were retained in 2023 to advise on the NAC sales process following the firm’s exit of Chapter 11 restructuring in July 2022. Since then, NAC had been steadily selling its portfolio of regional and crossover aircraft to various parties.
The start of more leasing platform sales?
An inevitable question is whether NAC represents the start of a further M&A wave in the aircraft leasing sector. The second half of 2024 saw several notable leasing M&A campaigns (see table below), which sources argue has been a continuation of a wider post-pandemic realignment within aircraft leasing.
But sources are split as to whether there is likely to be more consolidation in 2025 between lessors. One financier argues that recent bidders have reflected the entrance of new capital to sector, attracted by the higher-than-expected residual values of previous generation aircraft and engine assets.
Others argue that a more benign financing environment may have helped potential buyers raise debt for new transactions but has, at the same time, removed pressures on some smaller lessors to force a sale of some, or even all, of their assets.
One banking source explains that NAC’s shareholders include a mix of investors, including several who acquired stakes in NAC at a discount during the restructuring process and were looking for a return relatively quickly (see Insight: ‘NAC finally gets restructuring plan approval’). The source points out that not many other lessors face a similar pressure from their investors.
Details of the NAC sale
As of September 2024, NAC’s fleet comprised 252 owned and committed assets on lease to approximately 60 airline customers in approximately 40 countries.
On a pro forma basis, DAE Capital’s fleet will comprise of approximately 750 owned, managed and committed aircraft with a total value of approximately $22 billion on lease to approximately 170 airline customers in approximately 70 countries.
Firoz Tarapore, DAE CEO, commented: “We are delighted at this opportunity to add NAC’s capabilities, complimentary market presence, and people to our platform. This transaction will allow us to provide more cost-effective solutions to a larger group of customers.”
The transaction will be appropriately capitalised and funded by internal resources and committed debt financing. According to DAE, this will mean that the firm’s leverage and funding metrics will remain “comfortably within the levels consistent with DAE’s credit ratings.” Last year, the firm’s unsecured credit ratings were upgraded upgraded to Baa2 by Moody’s and to BBB by Fitch Ratings.
The transaction is subject to required regulatory approvals and approval of the shareholders of NAC Holdings Limited and is expected to be completed in the first half of 2025.
DAE was advised by Allen Overy Shearman Sterling LLP and KPMG.
The Ishka View
This was the M&A announcement people have been expecting in January but even as late as December it was not clear who might eventually pick up NAC. NAC’s strategy to essentially change itself from a regional aircraft lessor to acquiring more narrowbodies following its Chapter 11 restructuring, and in the process make itself a more attractive acquisition target, appears to have paid off.
In the 18 months between July 2022 and December 2023 the firm sold close to 125 aircraft – an astonishing tally. Ishka understands that the lessor had plans sell 50+ aircraft in 2024 – nearly all of which are out-of-production Embraer regional jets or De Havilland Canada (DHC) Q400 turboprops. DAE has past form when it comes to using mergers as an avenue for growth. A notable example was the 2017 acquisition of mid-life aircraft lessor AWAS. For DAE, the deal allows it to scale by adding roughly 250 aircraft and 42 new customers to its leasing operations in the context of a competitive secondary market.
Ishka: Does the proposed sale of NAC to DAE signal more lessor consolidation? | Ishka