With Castlelake launching its new aviation lending entity Merit AirFinance in August, the new the platform will provide debt capital to airlines and lessors for new and used aviation assets.
In an exclusive interview, Merit’s newly appointed president Patrick Mahoney and Castlelake head of capital markets Armin Rothauser spoke with Airline Economics on the newly launched entity.
Merit will build on Castlelake's aviation lending activity, having deployed over $5bn to airlines and lessors since 2020.
Rothauser said that he believes Castlelake has built a solid reputation in aviation, gaining differentiated and more efficient access to capital as a result.
“In our view, the right thing to do is use that access to capital to provide more value to and add solutions for airlines and leasing companies,” Rothauser explained. “The challenge that we faced is that we have a leasing company internally that competes for leasing deals. The solution is to create a separate entity and team that can use that unique access to deliver capital to other leasing companies.”
Mahoney, president of Merit AirFinance said he believes this access to efficient capital, coupled with its ability to deliver it to other leasing companies, will add “real value” to leasing companies and for the industry overall.
The business intends to have its own separate office space along with a dedicated origination team. Mahoney said he believes that keeping Merit’s business separate will further facilitate confidence among other leasing companies. He added that the team is expected to continue to grow.
Mahoney will transition from Castlelake's aviation capital markets function to lead Merit as its president. He will leverage his experience in previous roles within Castlelake's aviation underwriting, asset-based direct lending teams and aviation capital markets teams to lead Merit's strategy.
In addition, Castlelake will add Jakob Gallagher to succeed Mahoney's former role, leading Castlelake's aviation capital markets function. Gallagher has 13 years of experience in aviation capital markets and financing. He recently served as head of capital markets at Wings Capital Partners.
Merit launched with the ability to deploy over $1.8bn of committed capital via separately managed accounts.
“The capital is committed, the team is super active, and we expect to grow from here,” confirmed Mahoney.
Most of the activity, Mahoney explained, is expected to be senior secured. He added: “Because we have a more flexible capital mandate, and because the Merit team deeply understands aircraft investing, we believe we can underwrite more opportunities than a typical bank lender would.”
Mahoney said Merit will be opportunity driven, with diversification through airline exposure – either directly or via leasing companies - being key to mitigating risk factors.
In addition to its new entity, Castlelake had returned to the aviation asset backed securities (ABS) market earlier this year with the issuance of CLAS 2025-1 in February, and then issued CLAS 2025-2 in July. Spreads for the issuance were at pre-pandemic levels, marking renewed investor confidence and the continued recovery of the aviation sector post-pandemic.