Jetrader - March/April 2008 - 13

Jetrader: Can you give our readers a brief background on Aviation Capital Group? Stephen Hannahs: Aviation Capital Group was formed in 1989 and has lived and prospered through two wars in the Persian Gulf, the horror of 9/11, the Asian ﬁnancial crisis of the late ’90s, SARS in 2003, the subprime debacle in 2007 and wide ﬂuctuations in interest rate levels. Each event produced dramatic shifts—downward and upward—in aviation industry, some of which resulted in airlines and lessors exiting the business. Through it all, we were fortunate to remain profitable and to grow into one of the top-tier lessors with more than 230 aircraft in our portfolio and 100 aircraft on order from Boeing and Airbus. ACG was founded by Richard Baudouin, Ben Jung and me. Because we had extensive industry experience we had very clear views on the shape of the company. Our primary focus was to invest in aircraft that we viewed as “liquid” and current in their production. After living through many industry cycles, it was apparent that certain aircraft performed well from a leasing perspective in good times and bad. This became our investment focus. J: How did ACG become associated with Paciﬁc LifeCorp? SH: We became involved with Paciﬁc LifeCorp— the parent company of Paciﬁc Life Insurance— in 1996. ACG was an independent company prior to that period. At that time PL was seeking to diversify their business lines beyond the normal insurance products, mutual funds and annuities. They liked businesses with high degrees of operating and ﬁnancial leverage. They liked businesses that were scalable and ﬁt in the ﬁnancial services framework. They looked at a number of businesses and aircraft leasing ﬁt their criteria. Initially, PL acquired an equity position of 25 percent in ACG. Then as the comfort between both parties grew additional equity was acquired by Paciﬁc Life. Today, ACG is a wholly owned subsidiary of LifeCorp and a sister company to the insurance company. J: What are some of the beneﬁts that have resulted from this? SH: This relationship was beneﬁ cial to both companies. For PL it diversiﬁ ed their earnings stream away from the sensitivities of the capital markets—the stock market, for example—and it provided an ability to utilize ACG’s excess depreciation. For ACG it allowed us to grow more rapidly as PL provided equity capital in the early period of the relationship. By 2003, ACG had grown to a sufﬁ cient size that we also funded our equity capital internally— with one exception in 2005 when we bought Boullioun Aviation. Today ACG’s ﬁ nancing structure has evolved to where the company has its own investmentgrade credit rating and we fund ourselves on an unsecured corporate basis, and we’ll access the credit markets several times in 2008. In addition to the traditional bank facilities, ACG has funded itself with ECA and EXIM ﬁ nancing, and we’ve completed three ABS transactions. Two of these transactions were awarded the ﬁ nancing transaction of the year by AirFinance Journal. J: How did ACG’s purchase of Boullioun Aviation come about? SH: When Boullioun became available in 2004, it was very attractive to us because their investment philosophy ﬁt very well with ours, and the purchase allowed us to get additional diversity in our customer base. A primary reason for this purchase was our size. ACG had grown to where we were too big to compete with smaller companies that had small portfolios, and we weren’t efﬁcient in competing with larger companies that had scale and ﬁ nancing advantages. This purchase allowed us to improve our ﬁ nancing structure. The additional size assisted us in the reﬁ nement of our ﬁ nancing structure. Principally, it sped up our long desire to secure a corporate rating. Jetrader 13

Jetrader - March/April 2008

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