Air Lease rises in NYSE debut in sign of recovery

NEW YORK Wed Apr 20, 2011 3:09am EDT

Steven F. Udvar-Hazy, ALC's Chairman and CEO, poses in a first Air New Zealand A320 in Colomiers, near Toulouse, southwestern France, January 28, 2011. REUTERS/Jean-Philippe Arles

Steven F. Udvar-Hazy, ALC's Chairman and CEO, poses in a first Air New Zealand A320 in Colomiers, near Toulouse, southwestern France, January 28, 2011.

Credit: Reuters/Jean-Philippe Arles

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NEW YORK (Reuters) - Shares of Air Lease Corp, an aircraft leasing company founded by unofficial industry godfather Steven Udvar-Hazy, rose more than 5 percent in their debut on Tuesday in a strong sign the sector is recovering.

As the airline industry, tied to the global economy, suffered during the financial crisis, so did the aircraft lease companies that lend aircraft to airlines, especially as banks put the breaks on loans, making it hard for these companies to buy aircraft.

ALC's (AL.N) IPO, which raised more than expected on Monday, showed aircraft leasing is regaining its appeal. It also created a publicly-traded bellwether for the industry -- one that is a potential buyer of smaller players, an encouragement for others to go public and even a possible valuation benchmark for American International Group Inc (AIG.N) aircraft leasing unit ILFC, which was also founded by Udvar-Hazy.

"There is no doubt that when we look back on (the IPO) in due course, this will be an inflection point of the acceptance of the aircraft lease sector by the institutional investor," said Domhnal Slattery, chief executive of another new lessor, Avolon, based in Dublin, and who also founded RBS Aviation Capital.

ALC raised $802.5 million in the IPO, selling 30.3 million shares for $26.50. The company had planned to sell 25 million shares for $25 to $28 each. The shares added 5.5 percent to close at $27.95 on the New York Stock Exchange.

The offering brought ALC to the market at a generous premium to the three publicly traded comparables -- AerCap Holdings NV (AER.N), Aircastle Ltd (AYR.N) and Fly Leasing Ltd (FLY.N) -- as investors looked to Hazy's new venture as a way to buy into growing global travel, the turnover of older aircraft and Hazy's own legendary reputation.

Hazy founded ALC in February 2010 after leaving ILFC, which he co-founded in 1973 and expanded into the world's largest aircraft lessor. Widely credited with founding the entire industry, Hazy sold the company to AIG in 1990, but continued to run until the crisis, when AIG's financial woes put a strain on ILFC's ability to borrow money and buy aircraft.

After an unsuccessful bid to buy ILFC back, Hazy retired from the company and took a team of top ILFC executives with him to launch ALC.

"People are investing for the management team and the opportunity," Nick Einhorn, an analyst at Connecticut-based IPO research and investment firm Renaissance Capital, said of ALC.

AIG has repeatedly signaled it may sell ILFC, but nobody so far has offered to pay what the insurer thinks it is worth. The now-public ALC could help value ILFC.

Similarly, Royal Bank of Scotland aircraft leasing unit RBS Aviation Capital strays from the bank's general focus, meaning it is expected to be sold in the next few years, said Slattery, who left RBS in 2008.

"This IPO is more than a nudge, it's a very clear signal," Slattery said of ALC's impact on the coming changes. "I think in the boardrooms of businesses that own aircraft leasing units, people are saying: 'Hey, this has been a huge success, is there an opportunity for us?'"

He said the sector offered a lot of prospects for consolidation, but added Avolon was not expecting to go public or be involved in any acquisitions in the near future.

Together with General Electric Co's (GE.N) Commercial Aviation Services, ILFC has long dominated the plane leasing space, leaving just over half of the market share to the remaining smaller players.

Now one of those small companies might become the closest publicly traded peer of ILFC, but one that focuses on newer airplanes as the industry behemoths struggle with legacy fleets that are less fuel-efficient and riskier investments.

ALC said in a regulatory filing that it plans to use the proceeds from the offering to complete about $6.8 billion in aircraft purchases, or some 160 planes of which only 10 are used.

During his tenure at ILFC, Hazy was said to be able to effectively tell manufacturers such as Boeing Co (BA.N) and EADS EAD.PA unit Airbus what aircraft to build. He is so much a fixture of the industry that he once took his wife on a date to an airport and even has a Smithsonian air and space museum in Virginia named after him.

Hazy's new venture is backed by Leonard Green & Partners, Ares Management and Wilbur Ross's WL Ross & Co. JPMorgan and Credit Suisse led the underwriters on the Air Lease IPO.

(Reporting by Alina Selyukh and Clare Baldwin; editing by Gerald E. McCormick, Derek Caney, Tim Dobbyn and Andre Grenon)

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