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Monday, 27 July 2009

Safe as houses?

Allco was an Australian leasing company. You may have never heard of them but having been well known as an investment banking boutique renowned for arranging leases or aircraft, ships, railcars and real estate, they decided they could get into the leasing business, if only they ghad a little capital. Which they did. Just like their fellow Australians at Babcock & Brown (who used to be Americans), and just like their compatriots, Allco found that leveraged asseyt finance wasn't always a one way bet, particularly when the owners like to suck out massive paychecks for themselves, and the company went to the wall.

So the Allco receivers held an auction of the assets of the company, primarily a 68 aircraft portfolio encumbered by a large amount of debt, and the winning bidding group was the Chinese HNA Group and a US private-equity firm, Bravia Capital Partners, neither of whom is exactly a well-known name in aviation finance or aircraft remarketing.

Which is sort of important in this business. The aircraft leasing business requires hands-on expertise. Aircraft have a second-hand value but only in the hands of an operator who can use the plane in their fleet. The leading aircraft lessors such as ILFC and GECAS know the needs and plans of all the major airlines. The chances are the Chinese and their American friends don't have a clue. Abbey National made a similar mistake when they ought a mostly similar portfolio from ING in 2001, and we all remember GPA who demonstrated that bulk buying aircraft isn't necessarily a good idea if you can't lease them to your customers.

The problem for HNA, Bravia and the Allco receiver is that any such sale of these assets requires the consent of the lenders, and there are objections outstanding from three banks on the basis that the buyers do not have the relevant experience, those lenders being HBOS, the Military Superannuation Fund of Australia and Alliance & Leicester.

I'll say that again for the benefit of thse who thought their life savings were safe in the hands of a sleepy former building society currently owned by a large Spanish banking group, and not some wideboy bunch of chancers taking a risk on the future residual value of expensive pieces of metal currently located on the other side of the planet:

Alliance & Leicester.


Demetrius said...

As someone who got out of A & L a couple of years ago, I found this interesting. But no longer is much business about the realities of demand and supply, but about the financial intermediation. Call it Del Boy economics if you will.

Alex said...

Well Allco and Babcock & Brown went the other way from broking, structuring and arranging to acting as principals (and lost).