Listen in as John Evans, founder and CEO of lessor Azorra, shares his perspectives on airline market trends and lessor consolidation, hinting at upcoming M&A opportunities.
Don't miss a single episode. Subscribe to Aviation Week's Window Seat Podcast in Apple Podcasts, Spotify or wherever you get podcasts.
Discover all of our podcasts on our Apple Podcasts channel or at aviationweek.com/podcasts.
Rush Transcript
Victoria Moores: Hello everyone and welcome to Window Seat, our Aviation Week Network Air Transport podcast. I'm Air Transport World European Bureau Chief Victoria Moores. Welcome on board. This week I'm joined by John Evans, who is the founder and chief executive of Florida-based aircraft lessor Azorra. Welcome John.
John Evans: Happy to be here. I do prefer aisle seats though, by the way.
Victoria Moores: Okay. Hopefully we can make you as comfortable as possible during this one with that view out across the industry, which will be one of the places where we'll be starting. But before we check in on that, just a little bit of background. Now, John, you've been in the commercial aircraft leasing industry for the past 30 years, and during that time you founded three aircraft lessors. So that's dating back to Indigo Aviation, followed by Jetscape, and then Azorra, which is your most recent leasing company. Before that you worked for ILFC (International Lease Finance Corporation), so you've really got that experience of looking out across the industry and watching what's going on in the aviation market. So with that in mind, I wondered if you might be able to share with us the kind of trends that you are seeing right now as we head into the final quarter of 2024.
John Evans: Thanks for that introduction. On your question regarding recent industry trends, we are seeing some strains around the edges with some of our airline customers, and I think you've seen some of that in the press with Azul going through some restructuring now with their lessors. They've faced some unique challenges in the South American market with some flooding in Southern Brazil and one of their biggest markets, [and] the devaluation of their currency. We're also seeing some stress with some of the US carriers, low-cost carriers, and so we do see some ... It is also, by the way, one of the most exciting times in my 40—nearly 40—years in the industry. For a lessor, there are a lot of opportunities, but there's a bit of stress that we see in the next couple of quarters. I think where the lessors really can play a role is in helping to redeploy assets where there's demand.
The demand globally for aircraft exceeds supply. So meanwhile, though, we do have some operators that have big orderbook positions that may have a bit too much coming in the near term. So that actually creates an opportunity. I think you've seen in the press AerCap working on creative deals with Spirit Airlines on some of their orderbook. JetBlue deferring new aircraft deliveries during a time when there's a lot of demand for those aircraft in other parts of the world. So we are seeing some strain with some airlines and some challenges, but globally we still see very strong demand for aircraft.
Victoria Moores: What is it that you think is driving that strain now in particular for your customers?
John Evans: That's a really interesting question. I think that some have simply bitten off more than they can chew in terms of orderbooks and growth. And meanwhile, the major, well-entrenched carriers have tried to reinforce their positions and are competing very hard for their market share. And so some airlines have been a little bit slow in evolving to adapt to post-pandemic travel patterns. Some airlines have lost some of their market share in key markets when they pulled back during the pandemic and have been slow to recapture some of those markets—JetBlue, I think being a bit of an example of that. But other operators have been very quick to adapt and change, and we are seeing different travel patterns with people learning how to work more remotely with the technology that we're using today to host meetings, to have meetings. We see people traveling a bit closer to home, doing weekend trips where you can work remotely.
So that's really reinforced our belief in smaller aircraft, regional aircraft, crossover aircraft. But yeah, I think part of it really has to do with some weak balance sheets and with changing travel patterns and business models and people opting to pay a little bit more for a different level of service as well.
Victoria Moores: And you mentioned that the picture is different depending on whereabouts you are looking in the world. Pulling out that world map, which areas would you point to as looking the most positive with the strongest demand at the moment compared with the ones that perhaps looking a bit weaker, maybe a bit oversupplied?
John Evans: That's another good question. We see a lot of growth and demand in the APAC market, which was probably the slowest to recover post-pandemic, but has hit another gear now. And that's another market where we also see a shift in travel patterns or quite a big shift that's driven demand for smaller aircraft where we really never saw that before in the Asia-Pacific region. We've seen a lot of recent deals. One of our deals as an example, was Scoot Airlines, where Scoot went into Embraer E190 E2s to help develop new routes and markets in areas where they saw opportunity with a lower risk proposition of a smaller aircraft.
And with the investment and growth of infrastructure in the Asian region, we see a real increase in demand there. We were starting to see that in the Middle East as well, but obviously geopolitical issues in that region have slowed those developments, the advancement of traffic in that region. So really, I would point to Asia-Pacific as being one of the fastest-growing regions for us right now.
Victoria Moores: Absolutely. And I imagine that there's quite a few occasions when you're getting together with other players in the leasing market, talking to colleagues within the industry. What kind of conversations, what are the conversational themes that keep coming up when you are talking with your peers in the leasing sector as really dominating conversations at the moment?
John Evans: I think it's a little bit of what we touched upon—the haves and the have-nots right now in terms of airlines and the ones that are flourishing versus the ones that have challenges and how to deal with those challenges. There's multiple lessors right now that are in discussions. I mentioned Azul, some of the restructuring they're going through. We expect that to happen with some other operators. GOL is going through a Chapter 11 restructuring at the moment. So I think it's ... And also a flight to the lower risk credits among lessors where we see opportunity and working with some of the airlines that do have challenges but have really good underlying fundamentals.
And again, Azul will be an example of a company that has positive cash flows before you factor the debt that they had to take on through lease deferrals during the pandemic. And that also points to the airlines that made it well through the pandemic, the ones that had government support [are] flourishing today, and the ones that are still struggling with some of the leftovers of what they had to confront during that period. And some of the differences, like I said, in adapting to new travel patterns today.
Victoria Moores: And the same is true, I imagine, for the leasing market coming out of the pandemic. We had a few lessors that did need to go through restructuring. I'm thinking about companies like Nordic Aviation Capital, which acquired Jetscape, one of the leasing companies that you founded. We've seen a restructuring of the leasing market. We're seeing quite a lot of portfolio sales—to me, more than we saw historically. And I'm wondering what patterns are you seeing in that leasing market consolidation portfolio side of things?
John Evans: Thanks for that, Victoria. Well, we are seeing a pattern of consolidation trading, active trading within the leasing industry. And as a lessor, it's something that we rely upon is to have an active trade to prove the liquidity of the assets that we're investing in. So it's something that was put on the sidelines for a few years during the pandemic, and it's still a bit slower than we would like historically, in terms of trading activity. There's always been an interdependence of lessors upon the lessor market of bringing trading opportunities. There's the lessors that focus on the youngest aircraft and sell when they're midlife. There's lessors that focus on midlife aircraft and then lessors that focus on end-of-life aircraft.
So I think the industry is healthy when we have an active trade, and we are seeing a lot of that coming back to the market now. There's still some challenges with it, with the relatively high interest rate environment today still. So I would see an increase of that activity as interest rates hopefully continue to stabilize and come down in the future. But that's always been an important and active part of our industry is being able to trade among lessors. We've traded aircraft in the past couple of years now. It took us a while to build up a portfolio to where we have tradable assets, but we're pursuing active trading at the moment ourselves.
Victoria Moores: Yeah, and like you say, you have already been active in this space. You acquired Voyager Aviation Holdings in 2023—that was 16 aircraft that you got from their portfolio along with some of their staff. I know in the past you and I have talked about potential acquisition opportunities for Azorra in the regional sector, regional leasing sector. Is that something that's still in the cards for you? Are you evaluating any live opportunities at the moment for regional lessor acquisitions?
John Evans: Thanks, Victoria. We're always looking for opportunities to grow our business smartly. So there are a couple lessors that focus on our particular segment of the market that are currently being actively marketed. And there have been recent trades. It's been publicized that Falko has recently traded hands. And so I do expect that activity to continue. We look both at organic growth opportunities and a pipeline of investment opportunities directly with our airline customers and with the OEMs as well as M&A [mergers and acquisitions]. M&A does bring a lot of complication with it. As you touched upon, we did acquire Voyager and that's gone quite well, and we're really excited about that acquisition and the team has fit in perfectly with our team. So thankfully, in that case, it was a relatively small team of people and, like you touched upon, 16 assets.
We also, by the way, have acquired 48 aircraft in total out of NAC's [Nordic Aviation Capital] prior Chapter 11 in two separate transactions—37 aircraft with one of our house lenders, and another 11 aircraft in a separate transaction with a fund that had bought some of the debt. So we've been able to take advantage of some of that distress in the market and acquire aircraft through those restructurings. And we're going to continue to look at that as long as it fits our investment criteria and is a good complementary fit with our portfolio and with our team.
Victoria Moores: Thank you. So it sounds as though there's a lot of movement and as though that momentum is actually beginning to pick up again in terms of those transactions for aircraft. We're just about up for time now. So in a nutshell, I'm wondering if you could in one sentence sum up what you think lies ahead for the leasing industry, the airlines in 2025?
John Evans: I think what lies ahead is a lot of challenges for both lessors and airlines, but in my mind that also creates opportunity. So we'll be looking for opportunity through some of the challenges that we see coming in the industry. We're looking at M&A opportunities, as I mentioned, with companies that might have motivated sellers. So always being opportunistic, looking on the fringes. I've always, I guess, zigged when other people were zagging, and so we tend to be a little bit counterintuitive in looking for opportunities that fit our business model. We're one of the few lessors that focuses both on new and used aircraft, or I should say new generation and current generation aircraft, which we believe helps bring a good diversity between new technology, which we know comes with some challenges, and proven assets that still are in very strong demand. So we're going to continue to focus on what we do best going forward and keep our eyes open for those opportunities that come out of some of the challenges that some of our peers face in the industry and that airlines are facing.
Victoria Moores: Thank you. And I think that that's one of the things that characterizes any career in the airline industry is there's always interesting new challenges coming up.
John Evans: During my 40 years in this industry, the only constant has been change.
Victoria Moores: Yeah, absolutely. It's the one guaranteed thing alongside taxes and death, I guess. With that, we're going to bring the session to an end. So John, I'd like to thank you very much for joining us on the program today. It's been a pleasure to have you as our guest speaker. And thank you also to our producers Cory Hitt and Guy Ferneyhough. And finally, of course, a big thank you to you, our listeners. As always, please make sure you don't miss our weekly recordings by signing up to Apple Podcasts or wherever you like to listen. Until next time, this is Victoria Moores, disembarking from Window Seat.
Related Content
