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Aviation Capital Says 10 Planes in Limbo in Russia

Aviation Capital Group LLC, a Newport Beach-based lessor of airplanes to commercial carriers, says 10 of its aircraft have been unable to leave Russia due to the war in Ukraine.

“We have exposure to 10 aircraft, and it’s less than 5% of our total net book value,” ACG Chief Executive Tom Baker told the Business Journal on March 15.

He did not specify the potential loss in dollar terms, but said it is covered by insurance.

He said ACG’s exposure is “quite modest” compared to that of other aircraft leasing companies.

His comments reflected the situation as of March 15 when all 10 of the affected aircraft were in Russia.

ACG, founded in 1989, has more than 440 owned, managed and “committed” aircraft. The latter category covers aircraft on order.

The company’s planes are leased to approximately 90 airlines in about 45 countries. ACG is a wholly owned subsidiary of Tokyo Century Corp., which acquired the roughly 75% stake of the company it didn’t already own in 2019.

Owner of 8

ACG in November 2020 named Baker as chief executive, succeeding Khanh Tran, the former president of Pacific Life.

“We own eight directly,” Baker said of the planes in Russia. “For two of them, we have put financing in place with loans.”

Many airlines lease their planes to allow for flexibility with shifting passenger loads. There are approximately 480 aircraft leased by Russian airlines from foreign companies.

As for the future of these ACG planes:

“We’re working on it. I think there’s a reasonable probability we’ll get some of them back. I think it’s unlikely we’ll get them all back,” said Baker, who is also the company president.

Baker said he was looking for “better certainty” as efforts to end the war progress.

Russia has implemented a new law making it harder for foreign aircraft leasing companies to repossess their planes in the face of Western sanctions, the BBC reported earlier this month.

Flying Taxis

Other ACG financing projects count less political drama.

That includes the company’s backing of the plans of German company Volocopter to have electric-powered flying taxis and cargo transporters in service by 2024.

The Newport Beach company said last month that it had entered into an agreement in principle with Volocopter to develop financing arrangements “that will assist with the sale of Volocopter’s family of electric vertical take-off and landing aircraft for up to $1 billion.”

“This is still an agreement in principle and we’re working through the finer points,” ACG’s Baker said.

Financing Structures

“ACG will be working on developing the financing structures, structuring them, arranging them, finding investors who want to own this risk,” he said. “The actual risk will be owned by very specific investors.”

He added: “If they are phenomenally successful, then we will finance up $1 billion of their deliveries. If they’re not as successful, then that number will be much smaller.”

ACG already has identified “pockets of capital” that may be interested in investing.

If there are not enough investors, Baker said he could “envision” ACG putting in its own money.

The ACG financial arrangement will enable production of the aircraft for lease to customers, once certification is obtained from the European Union Aviation Safety Agency and the expected concurrent approval from the U.S. Federal Aviation Administration.

Mercedes-Benz, BlackRock

Volocopter’s equity investors include Mercedes-Benz Group, Geely, DB Schenker, WP Investment, Atlantia, BlackRock and Intel Capital.

ACG’s parent company, Tokyo Century, is also an early equity investor in Volocopter.

Other privately-held notable players in the rapidly expanding flying taxi industry include Overair Inc. in Santa Ana, and Hyundai spinoff Supernal, which has its engineering base in Irvine.

Santa Cruz-based Joby Aviation Inc. (NYSE: JOBY), which was valued at around $3 billion as of March 16, is the most valuale public company in the sector. 

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Kevin Costelloe
Kevin Costelloe
Tech reporter at Orange County Business Journal

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