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18.04.17

“We will only grow if it makes sense” – Aircraft Investor Interview with Ruth Kelly

Launched in November 2013, Goshawk has not yet had its fourth Birthday party. But although the leasing company is new, its management team is not. It has also grown quickly with a fleet of 92 aircraft.

Ruth Kelly, its CEO and one of the founding team, is keen to grow its portfolio but is not looking for “growth for growth’s sake”. This means they are prepared to lose deals and wait for the ones that make work for them.

She says she is focused on quality: high quality portfolios, high quality customers and high quality assets. Goshawk is taking a low-risk approach and fully aware that they might be outpriced.

Aircraft Investor: How is business?

Ruth Kelly: Business is good and we are happy with what we have achieved over the last few years. We have grown our current portfolio by $5 billion and we are incredibly pleased with the quality.

Our portfolio has strong leases, with an average eight-year remaining lease terms, a two-and-a-half-year average aircraft age and is 80% narrow bodies.

We lever our portfolio using third party funding, we have a good mix of bank and institutional lenders that are globally based, a mix of secured and unsecured facilities and tenner that matches leasing terms. We have a large warehouse and a revolving credit facility which are available for growth and our pricing is ever decreasing.

Our biggest frustration is that we have the capacity to grow faster but we are constrained by the competitiveness in the market and the lack of available opportunities at the right price and the right structure.

Aircraft Investor: Who are you competing with?

Ruth Kelly: Firstly, the sale and leaseback market is very competitive with lots of new entrants that are highly motivated to gain market share.

Also, airlines have other readily available avenues to finance their aircraft such as debt capital markets and commercial debt solutions that have reduced the number of aircraft available for sale and leaseback. This also makes the market more competitive.

The other market we are involved in is acquiring portfolios from other lessors. We have been less active in this market over the past 12-18 months as there are not a lot of portfolios available which consist of the types of aircraft we like to buy (we want young aircraft with long leases and strong lessees). There are not a lot of lessors selling portfolios of that quality in the market today with the larger lessors concentrating on selling mid-life assets, and/or wide bodies.

We are not active in the placement market because we don’t have an order book. We do have some aircraft coming off lease and have successfully placed everything out to 2019.

There is also the debt market where we access financing for the business. We are finding that the market is very strong, there is lots of availability across many different structures and lender types.

Aircraft Investor: How secure is your footing?

Ruth Kelly: We are very secure in the sale and leaseback market, with a committed portfolio of  more than five billion dollars and a proven track record of activity in that market.

We are in a great place at Goshawk. On one hand, we have reached the point where we have a strong team and strong financial backing. On the other hand, we are small enough to be nimble for our clients.

We spend time thinking about the requirements of our airline clients and create bespoke solutions for them, considering things like balance sheet needs and PDP financing solutions. We have been good at coming up with unique solutions and innovative structures for our customers.

We have all the fundamentals (experienced team, low execution risk, ability to act quickly etc..) and we have our own competitive edge in the sale and leaseback market which is ensuring that we get access to enough product.

On the financing side, we are a mainstream lessor who continues to build our lender base. In this market, we are also seen innovative in terms of the structures we have put in place in the last number of months.

We have completed our first US private placement which gave us access to the US institutional market. We were the first leasing company to issue a Schildschein, giving us access to the EU institutional market. We have both secure and unsecure notes and we have a large warehouse and RCF so we are very well established and diversified in the financing market as well.

Aircraft Investor: You are a young business that has grown quickly, can you keep growing as fast?

Ruth Kelly: We want to keep growing as its part of our competitive edge, but we will only grow if we can find acquisition opportunities that make sense for us.

Because the sale and leaseback market and the portfolio acquisition markets are so competitive, we have to have some angle in order to give us a competitive edge and the angle we tend to focus on is being innovative around the balance sheet needs of our clients.

One example of this is around coming up with solutions around PDP financings. On a number of occasions, we have come up with unique structures for airlines which has helped us win sale and leaseback mandates.

We find a niche there and its one we have been successful with to date, not just with PDP financing but other balance sheet issues as well. We intend to continue to use this, and develop other ideas, to help in the sale and lease market.

The portfolio market is a little less open to that kind of innovation, although we have been innovative in meeting timing requirements for portfolio sellers in the past and that has really helped us win mandates.

Portfolios tend to be largely price driven and we often find that we are priced out of the market, so that is a challenge for us and puts more pressure in our sale and leaseback in order to find growth.

We do not have any orders, we will contemplate one in the future but that is not an immediate avenue of growth for us.

Aircraft Investor: Will you keep your focus on young and brand new aircraft?

Ruth Kelly: Yes, young aircraft, not necessarily brand new, our portfolios have an average age of two-three years. Our strategy is to maintain a young fleet and continue to be invested in the newest technology although currently we are undergoing a change in technologies.

We will continue to invest in the newest technologies, the most fuel-efficient aircraft because that is the risk profile we want for our business. We want a good risk profile (hence young aircraft) good lessees and long leases.

Aircraft Investor: Are there any other countries or airlines you want to reach out to?

Ruth Kelly: We are a global lessor so we are constantly looking into new countries and new markets.

It is more of the same, we have 38 lessees in 28 countries and there are a number of other airlines we would like to do business with given the opportunity. We continue to speak to those airlines in the hope of growing our list of clients over the next few years.

Aircraft Investor: How easy is it for you to find finance at the moment?

Ruth Kelly: Our business is now in its fourth year and I think as time passes and as we have proven our ability to grow and manage the business and proven our ability to get all that diversification in the portfolio. I would say it has been easier for us to raise leverage because we are larger and more established so it’s probably not surprising. The key for us is to continue to diversify and make the pricing and structures as efficient as we can for the business.

There are a number of features for us in the financing market. We run quite a low leverage structure on our balance sheet which tends to be attractive for lenders and our objective in the financing market is to achieve diversification. This is across geographies, across different types of lenders, split between banks and institutions. We also have variety in structures, including secured and unsecured structures and then we need a warehouse of revolving credit facility to facilitate growth.

Our objectives are around achieving all of those things alongside an efficient cost of leverage for the business. Interest is one of our largest costs so it is in our interest for us to control that cost the best we can.

Aircraft Investor: Over the next five years, how will Goshawk change?

Ruth Kelly: Our objective is to continue to grow and to operate a low risk portfolio which is matched with efficient funding and match tenure with that funding.

Our business is of a size that we can continue to grow at an appropriate rate within our risk profile. There are lots of narrowbody aircraft being produced and needing to be financed and the leasing market is large. It is potentially growing also and we want to continue to access that end of the market and grow our portfolio in a way that meets the current strategic criteria and match with sufficient funding, tenure and interest costs.

Aircraft Investor:  How much are you looking to expand by in 2017?

Ruth Kelly: We would like to grow our business by around a billion dollars of assets every year. We do have the capability to grow at a faster rate if the opportunities present but if they don’t, then we will not grow. The main driver for us is finding suitable opportunities rather than having assessed target growth rates.

Aircraft Investor:  How have you seen lease rates change over the last five years?

Ruth Kelly: Since we set the business up in late 2013, we have seen the sale and leaseback market become really competitive. In terms of lease rate factor, you need to look at market context and specifically the interest rate environment. Comparing now with 10 years ago for example is probably a bit unfair as the interest rate environment was very different and even small changes can have an impact on sale and leaseback rates.

We have seen leaseback factors at levels we have historically never seen before in the marketplace.

Over the last few years, our interest costs have been trending downwards as we are more established. We have been able to live with lower lease rates and still be profitable.

Interest as a cost for us has been reducing but generally yes, lease rates and sale and leaseback have been very aggressive.

Aircraft Investor: What are you doing to adapt and change?

Ruth Kelly:We don’t compete on being the lowest cost provider or the lowest lease rate factor provider. We compete with our airline customers in terms of our innovation and our ability to help airlines with some of their other requirements outside of doing sale and lease back, we have won several sale and leaseback campaigns through structuring innovative solutions around balance sheet requirements for airlines.

We have a proven track record of execution and we can act very swiftly. Last year for example, we closed one transaction start to finish in three weeks. That was the competitive edge for that client.

We can do transactions of size and we have a proven team who have been in the industry for years. On top of this, we layer on top our ability to think broadly about structuring around balance sheets needs for our customers.

(http://www.aircraftinvestor.com/articles/aircraft-leasing/lessor-qa-ruth-kelly-goshawk-098/)

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