An investment firm has been built to exploit the opportunities it sees in an aviation industry trying to recover from the havoc caused by the pandemic.

A global pandemic and examples of pent-up demand for travel have put airlines and infrastructure under pressure, causing travellers to suffer delays and cancellations. But those troubles are also investment opportunities, according to AIP Capital, a European asset manager. It says the number of firms seeking new investment opportunities has surged.

With an estimated 4.35 billion people expected to travel in 2023 – closing in on the 4.54 billion who flew in 2019 – airline industry net profits are expected to reach $9.8 billion in 2023, which is more than double the previous forecast. As a result, asset managers will reap the rewards, AIP Capital said this week.

Airlines, particularly those at an early stage of growth, want to shield their balance sheets from further debt and are increasingly opting for leasing and sale-leaseback arrangements for aircraft, as opposed to outright purchases. According to Jared Ailstock, managing partner at AIP Capital, this model allows airlines to mitigate their financial risks and enables their growth in markets dominated by legacy carriers, while also providing private equity firms with a profitable investment opportunity.

Historically, banks have dominated the arena of aviation financing, yet with the retraction of these traditional lenders’ support throughout the years of the pandemic, private equity firms are seizing the opportunity to enter the fold, purchasing the new planes originally ordered by airlines, AIP Capital said. This indicates a big shift in aviation financing. A recent report published by Spherical Insights predicts that the global aviation asset management market size will grow from $177.79 billion in 2022 to $288.34 billion by 2032.

Launched in May 2023, AIP Capital has built a $1.6 billion portfolio encompassing 30 aircraft, with another 68 Boeing 737 Max models on order. Its activities include aircraft management, operating and acquisition finance, and private credit investing. It also has an additional $2.6 billion of capital deployed in investment grade, high-yield and distressed aviation credit. 

"There are a lot of really different and attractive ways to get yield in the environment we are living in right now. I think a lot of people have looked at different parts of that market and said 'Well, the risk/return in X, Y, Z investment is way better than aviation', and I think some of those participants wouldn't have said that a couple of years ago," Ailstock said.

"Where we have seen success are folks that have either been coming into the space for the very first time, because they view the entry point as being a lot more attractive today because there isn't as much equity in the space, or guys who have been able to weather the storm and they view aviation as a core part of their strategy and they will continue to deploy equity throughout various cycles,” he added.

AIP Capital, which was built to take advantage of accelerated opportunities in the post-pandemic aviation industry, was co-founded by Mathew Adamo and Ailstock, who have nearly 30 years of combined aviation experience.

Before founding AIP Capital, Adamo served as managing director of Aviation Investing at Castlelake and CIO for Jackson Square Aviation. Ailstock was previously managing director and head of Aviation – Business Development & Capital Markets at Castlelake and worked in structured finance at both Goldman Sachs and Credit Suisse.