The jet leasing arm of Newport Beach-based insurance company Pacific LifeCorp plans to nearly double the planes it already owns with orders for $10.5 billion more.
Pacific LifeCorp’s Aviation Capital Group Corp. recently ordered 17 Boeing Co. 737s valued at $1 billion, though the actual price negotiated could be less than half that, according to the company.
It was its eighth purchase from Boeing in two years, bringing Aviation Capital’s total to 80 planes to be delivered in the next eight years.
The company also has 45 A320 aircraft on order from Airbus SAS, part of European Aeronautic Defense & Space Co.
The buying spree comes despite trouble and consolidation among U.S. airlines. The deals are intended to meet global demand, which is growing faster, said Aviation Capital Chief Executive Stephen Hannahs.
“The rest of the world is just stepping up,” he said.
Thirty years ago when Hannahs got into the business, the U.S. controlled 60% of the commercial aviation business. That number has dropped to 20%, he said.
Aviation Capital buys planes and leases them to airlines. It has about 210 planes in 40 countries, leasing to nearly 100 carriers such as Southwest Airlines Co. and Alaska Air Group Inc.’s Alaska Airlines. It holds about $5.4 billion in cash and planes and counts 60 workers.
Airlines lease planes because it gives them flexibility in changing markets and doesn’t require the large amount of money needed to buy them on their own.
Aviation Capital is considered one of the five largest passenger jet lessors, competing with General Electric Co., Los Angeles-based International Lease Finance Corp. and New York-based CIT Group Inc.
Aviation Capital also manages planes for other companies. Last year it got a contract to manage 23 planes for a private equity firm.
The company is part of Pacific LifeCorp, which also owns life insurer Pacific Life Insurance Co. All three are part of Pacific Mutual Holding Co., which has $111 billion in assets.
Last year Aviation Capital opened a Singapore office to tap into growing markets in Asia, Eastern Europe and Mediterranean countries.
The near-term outlook for airlines has been bleak with higher fuel costs pressuring smaller carriers, such as Denver-based Frontier Airlines Holdings Inc., into bankruptcy.
Growth in international air passenger traffic may slow to about 5% in 2008 from 7.4% in 2007, according to the Montreal-based International Air Transport Association.
Longer term, international growth will drive demand for planes, according to Hannahs.
Hannahs said he also sees potential business from major carriers such as AMR Corp.’s American Airlines and United Air Lines Inc. as they need to replace their fleets in the next 20 years.
Aviation Capital, which Hannahs started in 1989, survived the 1990s recession, Asian financial meltdown in 1998 and terrorist attacks of 2001.
Pacific Life steadily raised its investment in the company until it owned a majority by 1996 and all as of last year.
In 2005, Aviation Capital doubled in size when it bought Seattle’s Boullioun Aviation Services for $2.65 billion.
At the end of last year, Aviation Capital posted its 18th straight quarter of rising revenue and profits, Hannahs said. Revenue of $611 million for 2007 was up 9% from 2006.
Aviation Capital sells as well as buys planes.
Last year, it sold 10 planes while acquiring 15 from Delta Air Lines Inc. when it filed for bankruptcy.
Aviation Capital buys only short haul planes, used by the majority of airlines around the world to ferry passengers just a few hundred miles.
That keeps the list of potential buyers high when leases run out and planes need to be resold, Hannahs said.
Wide body planes such as Boeing 747s are harder to sell because there are only 20 operators in the world, he said.
The average leases run for six to eight years, with the average life of a passenger jet around 30 years.
“The worst thing for a plane is for it to sit on the ground,” Hannahs said.
