Crianza Aviation matures

Eleanor Steed
By Eleanor Steed January 22, 2018 09:08

Crianza Aviation matures

Crianza wines are aged for at least two years before they can be drunk, which adds a depth of flavour and maturity to the wine. Formed in 2016 by equity partners IMM Investment Corp, the leading Korean venture capital firm, and Cerritos (previously known as Youjee Partners), Crianza Aviation is maturing nicely as an aircraft lessor. The company, which was set up with the express aim of becoming a leasing entity in Korea for the Korean market, is expanding by acquiring a majority stake in EastMerchant, which will provide financial advice and asset management services in the business.

Cerritos first invested equity in a few A380 and 777 deals with Emirates but rather than offer one or two stand-alone deals to the Korean market, they want to build a portfolio that aids investors by diversifying assets and credits. Believing in its premise to provide a conduit for Korean investment into aviation assets, EastMerchant took a stake in Crianza Aviation in early 2017 to become one of the controlling partners with IMM and Cerritos, and since then the relationship has deepened.

“Our partners came up with the idea of putting all of the entities and all of our different competencies together into one group,” says Baldur Vander, who is the new chief executive officer of Crianza Aviation next to Pumsoo Ra.

IMM and Cerritos made a proposal to Vander and Patrick Giese, who are the co-owners of EastMerchant following the successful management buyout of the company in 2008, for a share in the company. Initially, Vander and Giese believed this was for a small stake in their company, but it evolved into a majority share offer, which they accepted.

“We realized that this is also the next big step for EastMerchant,” says Vander. “For Crianza, it is a development from a lessor platform into an integrated lessor. For EastMerchant, it is the development from an integrated aviation service provider to becoming part of an integrated lessor.”

After EastMerchant had acted as a principal investor for two A330 aircraft purchased from Airbus which were financed in the Korean market, it entered its next development phase when it invested in Crianza Aviation. Now that relationship has deepened with IMM and Cerritos majority stake in the company. EastMerchant’s services will be integrated with Crianza Aviation, with Vander and Giese taking seats on the board of directors to transform the company into a full-service operating leasing entity. However, EastMerchant will remain an independent entity under the group’s umbrella, and will retain third-party clients and services.

“There is no conflict of interest with our third-party advisory business,” says Vander. We feel it even complements our activities. In the German market, we can bid on larger RFPs, where before we would have only been able to bid for two or three aircraft. We now have the ability to combine our capacity with the Crianza capacity to bid on fleets of aircraft.”

One of EastMerchant’s skills is to create bespoke financing structures for individual clients. “For example, one of the current RFPs we are working on comprises three different structures but we simplified the structure at its core to make it compelling for the airline client because they don’t need to negotiate three different sets of contracts,” explains Giese. “They negotiate one lease and then we construct a sophisticated annex to the contract to make it into a finance lease, a hybrid, or an operating lease for Korean and German investors. We can grant much more flexibility to airlines because our deals are always bespoke.”

Crianza Aviation has a main focus on widebody assets, which blend very well to more bespoke structured deals.

“Our target assets are medium-sized widebody aircraft – A330s, 787s and A350s – but we also remain open for more 777s and A380s,” says Vander. “They are not our highest priority but if the transaction is right and the risk allocation is right, we can finance almost any asset as long as risks and rewards are allocated properly. If somebody offers me five narrowbodies and we can afford their yield I would take them, but they are not going to be our immediate focus. Because we are small, we’re nimble and can pick up deals that makes sense for our investors quickly and efficiently.”

At the moment, the Crianza Aviation portfolio is overweight on widebody aircraft on lease to Middle East carriers but this is a usual situation for a portfolio in its early growth phase. The company aims to moderate this as the fleet grows during the second investment cycle. Crianza Aviation has already been able to secure some of the most popular medium-widebody aircraft for a prime lessee, which will allow for an initial diversification of the portfolio both regarding asset types as well as lessee exposure while implementing the next phase of diversification, portfolio management and transaction sourcing strategies.

Further diversification in the short term will focus on expanding the regional reach of the portfolio, expanding the portfolio regarding asset-types, adding staggered lease terms to better balance the portfolio’s lease termination profile and also adding more credit risk diversification in order to achieve a balanced portfolio within Crianza Aviation’s next investment round.

In addition, Crianza Aviation’s credit based investment approach will be complemented by increasing the focus to the individual quality of the investment asset, the contractual terms of the transaction, as well as any structural or other risk mitigants involved. As a result, Crianza Aviation’s investment focus can be expected to broaden significantly.

Eleanor Steed
By Eleanor Steed January 22, 2018 09:08