In 2018, a trio of Embry-Riddle alumni accomplished a previously unheard of aviation business feat. Over a 90-day period ending Oct. 9, they stood up a new aircraft leasing company, solidified a purchase agreement for 21 commercial aircraft and raised about $800 million in debt and equity that included an asset backed securitization (ABS).
“That was a big deal,” says Damon D’Agostino (’94), president, CEO and cofounder of Zephyrus Aviation Capital. “We were investment grade rated by S&P and Kroll. That [ABS] had never been done before by a startup aircraft leasing company.”
But Zephyrus is no ordinary startup.
“These guys have been around. You add up the years of experience that they’ve had … and it’s a bit difficult to call it a startup, per se,” says Michael Halaby, the head of aviation debt origination at Deutsche Bank in London that issued the ABS for the company.
“I think their success speaks for itself,” Halaby says. “They were able to access the ABS market in the same year that they started their company. There’s a lot of faith and respect that the market has for that management team.” [To learn more about the ABS market, see “Leapfrogging the Bank Markets,” this page.]
Collectively, D’Agostino and non-executive chairman Tony Diaz (’80) have more than 50 years of aircraft leasing experience. The company’s other two founders, Richard Genge (’09, ’13), vice president, and Robert Meade, chief commercial officer, together have another 20-plus years of experience in the business. Meade, an Air Force veteran, is the sole non-Embry-Riddle alumnus on the management team.
Aviation Business Foundation
All four founders of Zephyrus Aviation Capital are “alumni” of CIT Group’s Aerospace Division. It was at CIT that they earned their aircraft leasing chops. In fact, Diaz and fellow Embry-Riddle alumnus C. Jeffrey Knittel (’80), now chairman and CEO of Airbus Americas, built the aircraft leasing business at CIT from the ground up.
“[In 1987] when Jeff hired me, the CIT aviation group consisted of Jeff and myself. The last thing I thought was that I would be there for 30 years,” Diaz says.
Avolon Holdings Limited acquired CIT Group’s aircraft leasing business in April 2017 for $10.38 billion. The CIT Aerospace management team essentially performed itself out of jobs. An international aircraft leasing company, Avolon already had an executive staff.
At the time of the acquisition, Diaz was the president of CIT Aerospace, D’Agostino was the chief commercial officer, Genge was the assistant vice president for marketing and asset sales, and Meade was the director of marketing strategy and asset sales. The foursome started searching for their next big opportunities, individually.
A Startup Takes Flight
At an informal meeting at the end of summer 2017, the four former colleagues had an epiphany. “We were all thinking the same thing,” D’Agostino says. “That there is space for a mid- to late-life aircraft leasing company. [And] we realized that together we could make a really great team.”
First, they took stock of the industry. “Fuel price was low (2017) and forecasted to stay relatively low for the foreseeable future,” D’Agostino says. “As we dug into the market further, our analysis showed that there were about 8,000 aircraft at that time that fell into our age and equipment sweet spot. The older aircraft require a lot more ‘metal’ knowledge — meaning it isn’t just a financial transaction, you need to understand the inherent value and nuances of the aircraft, down to scrap value. This played to our strengths.”
Because mid- to late-life aircraft require more “high touch” and expertise on the part of the lessor, the barriers to entry in that segment are greater, Diaz says. This creates an environment that is less crowded, he adds. “We saw an opportunity in that sector.”
To bring the plan to fruition, Diaz leveraged his existing relationships with Virgo Investment Group and Seabury Capital, now the majority and minority owners of Zephyrus, respectively. The company name came from a smaller, pre-existing aircraft leasing entity operated by Virgo.
“It took about 12 months to form up,” Diaz says. “We had the equity and the management team. What we needed was aircraft.”
Their history at CIT Aerospace (now owned by Avolon) and insight into its fleet assets made Avolon an ideal prospect for the aircraft acquisition. “[Avolon] liked the idea of selling former CIT aircraft that were not core [to its business plan] to the former CIT management team,” Diaz says.
The aircraft, primarily A320s and Boeing 737s, are all presently leased to major commercial airlines. The Zephyrus management team constructed each of these leases while working for CIT. “The thought was that since we were familiar with the aircraft and airlines, the novation [lease transfer] process with the airlines would go smoother,” Diaz explains.
And it has. As of the end of December, Zephyrus had closed on three-quarters of the aircraft. “The novation process is the hardest part. It takes a little time,” Diaz says. He expects all 21 aircraft will be novated by March 31, 2019.
The Embry-Riddle Formula
Diaz and D’Agostino say their shared Embry-Riddle roots — but even more, their passion for aviation — is what makes their team work. It’s also the basis of a successful hiring formula that started at CIT Aerospace and continues to this day.
Diaz explains: “When we were at CIT in the early days, CIT would hire a lot of people out of college or interns. They tended, however, to come from finance schools.”
Although they were high-caliber employees, there was an unintended result for the aerospace group: high turnover. The new hires were hungry to learn all aspects of finance and the various industries served at CIT, so they would only stay a month or six weeks in the aircraft leasing sector, Diaz says.
One day, he recalls, “the lightbulb went off.” Diaz suggested the group try to hire new graduates who had an affinity for aviation. One of the first people hired under that program was D’Agostino, who spent the next 23 years in the CIT Aerospace division.
“Our success rate in keeping people went from almost zero to nearly 90 percent. That was one of the best decisions we made,” Diaz says.
With their first-hand knowledge — as alumni — and the university’s reputation as a leader in aviation business education, Embry-Riddle graduates became top prospects for internships and jobs at CIT Aerospace.
“We didn’t try to have a bias for Embry-Riddle, but that’s frankly where we found the best qualified candidates,” Diaz says. “The secret sauce was that they had an affinity for aviation. … Embry-Riddle was fertile ground.”
D’Agostino, who in 2009 hired Zephyrus co-founder and fellow Eagle, Richard Genge, at CIT, agrees. “Embry-Riddle brings graduates with a solid foundation of a top-tier business education, along with the passion for aviation that we all have in this industry. It’s a home run for us.”
Zephyrus is now in full-growth mode and is poised to add another Embry-Riddle alumnus to its team. “At CIT, we had a lot of Embry-Riddle graduates, and I’d like to think that we were very successful. So, I see no reason why we shouldn’t do the same thing again,” D’Agostino says.
Financing the Future
D’Agostino and Diaz see only blue skies ahead for the aviation industry — and the operating lease business. And why wouldn’t they? “Back in 1987, when I first started with Jeff [Knittel] at CIT, operating leasing was 1 to 2 percent of the market. Today it’s about 45 percent of the market,” Diaz says.
All indications are that the leasing sector will continue to grow, D’Agostino affirms. “Passenger demand continues to increase, and historically, air travel has doubled in size roughly every 15 years. There doesn’t seem to be any slowdown in sight when looking at long-term trends. That means the number of aircraft that need to be financed will continue to grow.”
With the expertise of its management team and a name like Zephyrus — the Greek god of the west wind and the messenger of spring — this startup will likely bloom.
Editor’s note: D’Agostino holds a B.S. in Aviation Business Administration, Diaz has a B.S. in Aeronautical Studies and Genge has a B.S. in Aviation Business Administration and an MBA – Aviation, all from Embry-Riddle. D’Agostino also holds an MBA – International Business from the University of Miami and is a member of Embry-Riddle’s David B. O’Maley College of Business Industry Advisory Board.