Hop on a Plane and Hedge Your Bets

Physician's Money Digest, September 2007, Volume 14, Issue 9

Think owning an airplane is a bit out of your price range? Think again. Hedge funds, capitalizing on a trend by airlines to switch from owning to leasing their aircraft, have bought into the airplane leasing business. Sensing that global demand for aircraft would increase, hedge funds began buying individual aircraft and storing them until they had amassed a fleet. The funds then created airplane leasing companies. Cerberus Capital Management and Fortress Investment Group have capitalized on the growing trend.

According to Fortune, Fortress' leasing company, Aircastle, raised $240 million during its initial public offering in August 2006, and 8 months later their shares were up about 30%. Cerberus bought DaimlerChrysler's stake in Debis AirFinance leasing firm when the carmaker made company cutbacks. Private-equity firms are also joining in on the plane game. In May 2007, private-equity firm Terra Firma purchased Pegasus Aviation Finance for $5.2 billion and now owns the world's third-largest plane leaser. Hedge funds and private-equity firms now own approximately 17.8% of the world's airplanes.