Iryna Ivashchuk, Franklin H. Caplan, Daniel Lampert and Phylis S. Bean (J. Albert Diaz)
Dealmakers:Daniel Lampert, Franklin Caplan, Phyllis Bean and Iryna Ivashchuk
The Deal: The Berger Singerman attorneys helped restructure a $700 million aircraft lease for cargo carrier Southern Air.
Details: Close relationships between the executive teams of two competing cargo airliners and a private equity firm helped cinch a complicated three-way deal between those companies, an attorney who helped put together the transaction told the Daily Business Review. The restructuring of a $700 million lease for four cargo airplanes will help save Florence, Ky..-based Southern Air Inc. money, while providing an economic benefit for Bonn, Germany-based DHL Aviation and reducing the financial risk faced by New York-based Oak Hill Capital Partners, according to Daniel Lampert, a partner at Miami’s Berger Singerman who worked the transaction for Southern Air.
Prior to the deal, Southern Air had leased the planes from Oak Hill, which holds a large equity stake in that cargo carrier. But because Southern Air does not have a top credit rating, so financing terms on those leases were expensive, Lampert told the Daily Business Review. As part of the deal he helped engineer, DHL will now lease the aircraft from Oak Hill—at much more attractive prices due to that firm’s sterling credit—and then proceed to sublet the planes to Southern Air. Responsibility for maintaining and repairing the aircraft, which previously had fallen squarely on Southern Air, will now be shared.
“The reason why DHL and Southern Air work so well is because most Southern Air executives used to work at DHL,” Lampert explained, noting his firm came to know many of those executives during a prior engagement with DHL. Southern Air has been chartering planes for DHL since at least 2011.
The current deal “is designed to be perpetual with renewable terms” and expressed as a fixed rate lease, Lampert said. Oak Hill could then privately purchase interest rate swaps on the private market to protect themselves against adverse interest rate changes. The potential long life of the deal is important because the arrangement is for aircraft less than a decade old, which are unusual in the world of cargo airplanes.
“The market habit has been to fly the jets until they get so old that people start complaining and then convert them to cargo,” Lampert noted. “These are unusual. These aircraft potentially could be used for this operation for 20 or 30 years.”
The attorney noted the deal is indicative of the current credit environment, where large marquee companies like DHL are able to obtain extremely cheap financing not available to their smaller rivals.
“The long-term nature of what’s happened to the lending industry has created two markets,” Lampert said “There’s one market, which DHL enjoys, and companies like Apple enjoy, and that’s an incredibly favorable interest rate environment. There you can borrow at a rate that’s less than inflation. In contrast to that, the next tier of companies, the market for bank loans has largely been made to dry up.”
Private equity has largely filled that gap, but through transactions like the deal at hand, companies themselves are helping bridge financing.
That’s needed in an industry that’s seen the end of “the good old days, when you could get 100 percent, you could get 95 percent” financing on airplane capital expenditures, Lampert said.
“Now if you’re able to get 80, you’re doing well,” Lampert said.
Quote: “The long-term nature of what’s happened to the lending industry has created two markets.”
Background:Lampert and Caplan are partners in Berger Singerman’s business finance and tax practice. Ivashchuk is an associate and Bean is of counsel in that practice.