Airline Due Diligence and Fleet Restructuring
Following the onset of COVID-19, a leading airline with a fleet of more than 100 aircraft in the Asia Pacific region entered voluntary administration; court appointed administrators held a process to sell the airline to a suitable bidder.
Alton’s leading private equity client was one of the few shortlisted bidders, and ultimately emerged as the winning bidder in the process. Alton advised its client on the fleet restructuring, with a goal of rightsizing fleet types and fleet sizes in anticipation of a post-COVID-19 new normal.
Our engagement commenced with a full evaluation of the airline’s current in-service fleet and order book. Detailed network-specific direct operating costs and total cost analysis was performed for each aircraft tail number.
On behalf of the new equity investor and airline, Alton issued an RFI and RFP to invite existing and new lessors, lenders, and aircraft manufacturers to place their aircraft with the recapitalized airline. Using proposed terms, Alton performed a tail-specific aircraft economic assessment to determine an optimized fleet. In addition to the economic modeling, a qualitative assessment of other desired terms (lease duration, maintenance clauses, etc.) were considered.
The airline exited administration with a single fleet of Boeing 737NGs and an order for Boeing 737 MAX aircraft, simplifying its business significantly by shedding four (4) other fleet types, including both regional and widebody types.
All terms negotiated were reflective of the post-COVID-19 market reality and substantially improved credit profile of the airline given the restructuring and new capital commitments, with certain rent terms agreed on power-by-the-hour structures to align fleet ownership costs with expected recovery timelines.
In addition to the headline lease rates, Alton helped its client negotiate on other commercial terms and conditions that brought very significant economic value.
The successful transaction, the acquisition of Virgin Australia, was recognized as the ‘2020 M&A Deal of the Year’ by Airfinance Journal.