Helicopter Financing 101 feat. Matt Rothschild - Aspen Funds
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Helicopter Financing 101 feat. Matt Rothschild


Discover helicopter financing with Thora Capital CEO, Matt Rothschild. Learn about its origins, mechanics, markets served, financial structures, risks, benefits, tax advantages, and future trends.


Connect with Matt Rothschild on LinkedIn https://www.linkedin.com/in/mattrothschild/
Connect with Ben Fraser on LinkedIn https://www.linkedin.com/in/benwfraser/


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E154 Transcription

Introduction and Welcome

Ben Fraser: Hello, Future Billionaires. Welcome back to your favorite podcast, the Invest Like a Billionaire show. Today, we had a really fun guest. So if you’ve been following the show for a little while, you understand we are all about educating investors on alternative investments. And some of the fun things I get to do or talk with people like today’s guests, Matt Rothschild on really unique niche strategies and alternative investing.

Exploring Helicopter Financing with Matt Rothschild

Ben Fraser: So he talks all about Helicopter Financing. So this is a little niche that he discovered. He has a background on Wall Street and asset management and has found his way into this really unique niche. And we get into all the reasons why it exists and how it works. And it’s really cool. And so I encourage you to check this out and listen in on the whole world of helicopter finance and how they’re going about doing it.

I think you’re really going to enjoy this show. Matt is really smart and has a lot of knowledge and background and things. And I think he can make some things really interesting and relatable for people to understand. 

The Importance of Due Diligence

Ben Fraser: So with that, I was going to give the caveat, when we bring people on that are raising capital, we want it to make sure you understand this was just a conversation.

We’ve had due diligence. We bring people that we think have an interesting story, interesting angle, perspective, and just generally, curiosity from our standpoint to bring them on. If you’re interested or you want to learn more about it, you can obviously do that. But make sure you do your own due diligence and don’t take this podcast as a recommendation from us as having done that.

I do hope you will enjoy the show and if you are enjoying the show in general, please leave a review, share with a friend. And I think you’re really going to enjoy this podcast with Matt Rotschild. Here we go. 

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Ben Fraser: This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you’ll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics, and interview successful investors.

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Welcome back to another episode of the Invest Like a Billionaire podcast. I am your host, Ben Fraser. And today I’m joined by a special guest, Matt Rothschild.

Very excited to have Matt on. We’re going to talk about a very unique niche investment strategy that I had really no idea existed. And very excited to bring Matt on as an expert. So Matt has a background as an institutional investor. He’s worked in asset management with several large firms MBA from Chicago Booth School of Business, very smart guy and excited to bring him on to share about helicopter financing and niche aircraft financing strategies.

So Matt, thanks for coming on. 

Matt Rothschild: Yeah, it’s a pleasure to be here. I really want to thank you for having us. 

Ben Fraser: Yeah. 

The Journey to Helicopter Financing

Ben Fraser: So let’s get a little bit into your background, start from. Your time spent in the finance industry and then really what, led you to, founding Thorough Capital and where you’re at now.

Matt Rothschild: Yeah. Prior to co-founding Thora, I was a public equities portfolio manager focused on the publicly traded stocks of insurers and asset managers. After graduating from Chicago’s MBA program, I landed a job at Alliance Bernstein, where I was responsible for that coverage universe as an analyst. I progressed my career there and left for the U. S. Director of Research for financial services firms. And then went on to a couple of long, short market neutral equity hedge funds where I continue to invest in broadly the same set of stocks. And in 2017 I was at a market neutral hedge fund. And we’re sitting down with a veteran investment banker because at the time Apollo Global, the large private equity private credit firm, and their then publicly traded affiliate called Athene, which is a life insurer that they now own internally, right?

Yeah. We’re both very vocal on non deal roadshows about their desire and intent to start an aircraft leasing business. And so I was sitting down with this banker and I was asking him typical portfolio management questions about how aircraft leasing would fit into their affiliate portfolios. How it would impact company perception and investor valuation.

And the banker said to me, we’ll get into all that and I’ll answer all your questions, but first I need to say, if I were younger and more adventuresome, I’d start a helicopter lessor. And I said, Oh, that’s interesting. Let’s talk about that for a little bit. And we did. We spent about five minutes on that and then got into the heart of the meeting.

And I was so enthralled with the idea of helicopter investing as a result of that brief aside. It. I immediately after our meeting walked out of that conference room and into a different conference room and called a former hedge fund colleague of mine named Adam Gershon who ended up being a partner and co-founder with us at Thora and said, I think I found our next great investment strategy.

Ben Fraser: That’s an awesome story. And so you were younger and more adventurous than the guy who shared it. It’s Hey, I’ll, I’m going to take that opportunity. 

Understanding Helicopter Leasing

Ben Fraser: So talk a little bit about what it means to be a helicopter lessor, and for those that are listening, a lot of folks here.

Mostly real estate background investing in, more traditional types of alternative investments and, this is a pretty niche. So explain the different counterparties, how they interact and what value you’re providing to this space. 

Matt Rothschild: Yeah. There’s a lot for people who are familiar with real estate, the kind of fundamental inputs to return generation are quite similar.

There’s three key drivers of unlevered returns, and that’s the cap rate, which in aviation leasing we refer to as the lease rate factor. It’s just the monthly cap rate as opposed to the annualized cap rate. It’s the duration of the lease and then it’s your exit price as a function of your acquisition price.

And also, like commercial real estate, our returns are built from the monthly cash flows that we receive from rental payments. And then ultimately, the disposition of the asset, which can come in conjunction with natural lease maturity, but doesn’t necessarily have to. And when we’re introducing the strategy to new prospects, we say, think about us like a commercial real estate strategy.

But instead of acquiring office space that’s on medium term rentals to tenants, we’re acquiring aircraft that are on intermediate term leases to operators. And like commercial real estate, our leases are hell or high water, or take or pay, whatever your preferred phrasing is. That just means that our lessees owe us the same fixed monthly rental amount, regardless of what their monthly usage of the asset is.

And they’re also triple net. And triple net to an aircraft lessor. means that our underlying lessee customers are financially responsible for maintenance and insurance on the aircraft. So like a triple net lease, once we deploy capital, our only ongoing financial responsibilities to the asset are debt service, assuming we use debt as part of the capital structure, which we do in most, but not all cases.

The analogous version of outsourced property management expense, which in aviation leasing, is known as technical service monitoring and then some ancillary bank and entity registration fees for the SPVs that are the legal entities that own the assets. 

Ben Fraser: Yeah, that makes a lot of sense. That’s a great analogy.

So instead of a commercial real estate investor owning a strip center and leasing out to different retail tenants or office buildings, you’re leasing out to different companies. So you’re buying the aircraft and you’re leasing that to these different companies. 

The Unique Opportunity in Helicopter Financing

Ben Fraser: So why helicopters? What’s the unique opportunity in helicopters versus other aviation?

Matt Rothschild: Sure. Aircraft leasing as an institutional form of financing. Got started in the late 1960s when GE started GE commercial aviation services. And from the late 1960s until the early 1990s, you had it financed almost exclusively by specialty finance firms that use their corporate balance sheet to acquire their fleet.

And generate return on capital that way. In the early 90s, you started to see traditional GPLP structures of investment fund managers that decided to tap into the returns and the cash flows generated by commercial jet leases as an alternative form of commercial jet finance.

An interesting anecdote: Step Brothers came out in 2008. And if you remember the movie, Will Ferrell’s brother plays a helicopter lessor. There were no institutional helicopter lessors at the time. So the first analogous company that came out analogous to GE’s GCAS was a firm called Milestone and they started in 2010.

So two years after Step Brothers. And the first entries into institutional finance of helicopters were all specialty finance firms. And Thora mapping to the structure of the commercial jet ecosystem is the first traditional GPLP structure. We were started in 2018 to source returns backed by helicopter leases on behalf of institutional and high net worth investors.

Ben Fraser: So do you have to pay Will Ferrell any royalties for coming up with the idea or it’s a free game? 

Matt Rothschild: We did have an idea of naming the firm Prestige Worldwide instead of Thora but we didn’t want to get into any trademark violations. 

Ben Fraser: Oh, so you know I’m familiar.

When I was a banker, we had a client that was a fractional jet ownership company, and so they would basically sell fractional shares into private jets that different businesses could buy into and then have a certain amount of usage for a period of time too. Travel between properties or offices or whatever.

And the model was basically, you have different tiers of membership. You in a similar way are responsible for maintenance and other things and piloting, but you get say 10 hours a month and that’s what your allotment is. Is that similar to what you’re doing? Obviously you’re a lesser source, you own the aircraft.

You’re not actually. By forgetting the ownership of it, but do you sell, is it one to one, like one helicopter to one client, or is it one to many, do you have multiple lessees in each asset? 

Matt Rothschild: Yeah, it’s a good question. I would say, fractional ownership in the aviation community is a little bit more akin to shared office space or share workspace like a we work or a serve corp or a regis ours is more at least what I consider to be traditional real estate investing where Our primary source of deal flow is sale lease back with an existing owner operator of an aircraft Who wants the balance sheet and working capital flexibility that comes from leasing their equipment as opposed to owning their equipment and also more important to them is the cash flow matching or the cash flow timing matching where rather than sinking a large amount of capex.

Into an expensive piece of equipment and effectively recouping that capex over future years where they’re out the cash here, we’re effectively buying the asset for them either directly from them or from a different source. And so their operating revenues the timing of that is more closely matched with their lease expenses.

Ben Fraser: Yeah. Okay. Got it. 

The Mechanics of Sale Leaseback in Helicopter Financing

Ben Fraser: So you mentioned a little bit, the sale lease back concept, right? And this is something that’s very common in real estate where there’s an operating business, say a McDonald’s or something like that, they have a lot of real estate that they need to operate their business, but they don’t really want to be real estate owners.

They would rather have a lease agreement and pay someone else that owns the real estate and gets the stream of cash flow. And instead of having to come up with the cash for down payment or the balance sheet to get leverage against, they can then redeploy their capital into what they’re better at, which is operating the business and not trying to also, be a real estate operator on the side.

And so we see that. It kind of ebbs and flows at different times, and different business strategies, whether they decide to own real estate or lease it. But in this scenario the. Users of the helicopters prefer to not have the capital tied up in the asset and would instead rather pay you a stream of cash to lease it.

Is that kind of a simple way to understand a sale lease back? 

Matt Rothschild: Yeah. You can also, so we like to use real estate analogies cause it’s a much more institutional investment. But you can also use an analogy to car leases. And so you’ve got the Hertz and Enterprises and Avis’s of the world, and that would be more like fractional ownership.

And then you’ve got Ford Motor Credit or Toyota Motor Credit, where if you walk into your local Ford dealership the salesperson might say, you can write us a check for a Ford Explorer at 50, 000 right away, or you can finance it for, 1, 000 a month, or you can lease it for 500 a month.

The lessee is in control of the asset and you don’t necessarily know if you’re leasing a car from Ford, who the ultimate owner of that vehicle is. It might be Ford motor credit. It might be Chase or Bank of America. All you know is that you’re writing a check to someone for 500 a month. For the right to operate and use that car. However you see fit. 

Ben Fraser: Got it. So who’s using helicopters and who uses the normal course of their business? 

Matt Rothschild: Yeah. So that’s there’s a couple of compelling aspects about helicopter finance compared to commercial jet finance. And in our opinion one is the fleet dynamics and how mission critical those dynamics are.

Roughly half of the fleet is configured for first responders, including air ambulance law enforcement, firefighting, and search and rescue. And then also utility and utility tends to be a bit of a catch all phrase in the industry. But the two most common mission types that we see are the monitoring of telephone and power lines and towers and getting repair crew and equipment out to remote locations.

Or for heavy lift operations, where getting cranes into the area is cost prohibitive. And in aggregate, those are very macroeconomically insensitive use cases. And so we have very low correlation from an underlying fundamental standpoint with the broader economy. The next iteration of the fleet is about 10 to 15 percent of units configured for offshore energy exploration.

But these are much larger helicopters than the typical in the fleet. And as a result of that larger size and passenger capacity, they are really like giant flying school buses. And even though they’re only about 10 to 15 percent of fleet units, they’re about 30 percent of the economic value of the fleet.

So between them it’s more expensive. They are much more expensive, yeah. And in aggregate, the utility, first responder, and offshore energy segment comprise about two thirds of fleet units, but closer to 85 percent of fleet value. And there’s really no alternative forms of transportation that those underlying end users can choose from.

And so they are truly mission critical in their use case and again, tend to not correlate with the broader economy as a whole. 

Ben Fraser: Yeah. Interesting. So for the first user you mentioned, the emergency responders, utilities. These are government agencies, right? Or are these contracted to the government or how does that work? 

Matt Rothschild: Yeah, it’s a good question. Unlike commercial jet finance, where let’s say we were leasing a jet to Delta, and you might be flying on Delta, but we would assume that Delta is both the operator of that aircraft and the end user of that aircraft. In the helicopter industry, what’s much more common is that the end user is distinct from the operator.

So let’s take a hospital EMS program, Emergency Medical Service, as an example. What’s most common is that you have a private intermediary operator, and that operator has a contract with the hospital to provide transportation services through a helicopter. The operator will provide their equipment, their helicopter which may be leased or may be owned, and they’ll also provide their piloting team.

And then the hospital will provide paramedics and nurses that fly with the patients or organs in the case of organ transport. And so the end user and the operator in the helicopter industry are most often distinct from each other. And that’s one dynamic that’s slightly different from what we see in the commercial jet financing sector.

Ben Fraser: Okay. Interesting. So one of the big questions I have about all this is, you know, it’s interesting that there’s an opportunity here because, I look at, my father’s a pilot. I think I mentioned this to you before. And he flies a Cirrus and Cirrus has their own financing program.

So you can basically buy it directly from the manufacturer and it’s extremely attractive, low interest rate, they’ll have a very low down payment. And they’ll be part of their incentive to probably like Ford motor credit, where it’s like, Hey, if we buy it we can finance it for you and allow them to roll a lot of different fees or other things to make the price more.

Addressing Financing Challenges in the Helicopter Market

Ben Fraser: But why doesn’t that exist in this space? And why isn’t there maybe more traditional bank financing, like for a car or you might just go and get a loan from, your local bank or credit union or something and finance it that way. Why does that not exist for these types of assets?

Matt Rothschild: Yeah, there’s, so there’s a couple of reasons. The first is the manufacturers, and there’s four primary manufacturers: Airbus, Bell, which is an affiliate of Tektron Leonardo, and Sikorsky. And some of the manufacturers will have financing arms, but they’ll only go up to a maximum of 50 to 60 percent LTV, and if someone wants to finance their aircraft, they need to come up with the other 40 to 50 percent.

And of the capital structure. You probably know this with your real estate background, but it seems to me, every bank in the world has a real estate workout group. And there’s not a bank on the planet that has a helicopter workout group. And so these smaller operators, and just to give you some framing on that, there’s almost 30, 000 helicopters in the global civilian fleet.

And almost 9, 000 operators. So on average, an operator is only in control of around three or four aircraft. And if you were an aircraft operator, a helicopter operator sitting in Kansas city, and you went to your local bank and said, Hey, I’m looking for the other, for the additional financing that Airbus bank won’t give me.

They, the juice isn’t worth the squeeze for them to get up the learning curve on how to underwrite a helicopter because maybe you’ve got four helicopters and what’s an optimistic case for the loan underwriter is maybe you double your business and you’ve got eight, but still the time that they sink into learning how to underwrite helicopters and what their different risks are, doesn’t really make sense from a return on labor perspective.

For us, when we’re working with lenders to potentially finance our fleet, they expect, and we hope to deliver additional deal flow above and beyond the one deal that we might be talking about. So from their perspective, it makes sense to put in the work, to learn how to underwrite in a way that it wouldn’t for a local banking relationship.

Ben Fraser: That makes so much sense. It’s just a. It’s a very niche, not a huge addressable market, especially if it’s more of a regional lender. And, like you’re saying, there might be only a few operators in that space and it’s not a very big niche to spend the time learning about.

And then once you have a defaulter, defaulted borrower, what are you going to do with the helicopter sitting in the back lot? So that makes a lot of sense, for the other side of it though, for the ones that are. Yeah, the Mercy Responder Utility companies that are more government affiliated.

Why wouldn’t they just sell bonds or finance it through some form of kind of state or municipality or government financing that’s probably a lot cheaper than what you guys are charging? 

Matt Rothschild: It certainly would be cheaper for them to do it that way. Part of it is just the scale of the business doesn’t really warrant it.

So if the average price of a helicopter in the global fleet is two to 3 million, you’re not going to be able to get a municipal underwriter to go out and buy it, let’s say it’s a four helicopter deal and it’s 10 or 20 million. You’re not going to be able to tap into the capital markets externally.

For a 20 million helicopter deal. 

Ben Fraser: Yeah, that makes a lot of sense. So when you guys, you, you said you’ll sometimes get leverage on the underlying asset. So from your stand or from a bank looking at you, it’s a different conversation because you’re becoming the gatekeeper for a lot of these types of deals.

So you have more consistent deal flow. If they get comfortable with you and your underwriting and how you structure these leases. It’s not just a one and done, it’s potentially a much larger relationship, which then warrants the time. And so you’re becoming that intermediary that helps.

Kind of create more capital flows from more traditional lenders to this space. Is that kind of the value you’re bringing to the market from a lending standpoint? 

Matt Rothschild: Yeah, from a lender’s perspective, that’s certainly part of the value. Then the other part of the value is if the underlying lessee defaults we have a fiduciary obligation to our investors to make sure we recover as much as we can.

Lenders are more confident that we’ll try and monetize that aircraft on their behalf protecting our investors capital. Then if they were financing an operator who also defaulted at that point in time there’s nothing else to go after. There’s no incentive for that operator to try and make the bank a hole for us.

We have every incentive in the world to make our lenders whole. 

Ben Fraser: And then you have. A whole host of operators and lessees that need these assets. And they, you have the whole network that the banks have. 

Matt Rothschild: So we’ve got a network that the banks certainly wouldn’t have in terms of replacing or remarketing that aircraft.

And it’s a global market. The same as using an Airbus model type as an example. The same Airbus EC 135 that’s flying in Kansas City would be exactly the same Airbus 135 that’s flying in Sydney or Melbourne or, kind of Sao Paulo or Rio. And so we can place aircraft globally because it is a global investment strategy.

The nice thing about it being a global investment strategy is almost universally leases are priced in U. S. dollars. So you’re getting global diversification without taking currency risk. 

Ben Fraser: Okay. Very interesting. Very interesting. 

Tax Advantages and Depreciation Benefits of Helicopter Investing

Ben Fraser: Talk a little bit about just depreciation or tax advantages with investing in these types of assets, similar to other types of real assets.

Matt Rothschild: Yeah. This is another great aspect of the story. And so we’ll talk about depreciation. Depreciation is one of the other characteristics that makes helicopter investing so compelling and that’s on two different fronts. One is the tax advantages that get passed through to our capital partners.

But the other is that helicopters are extremely long lived assets, and that, in and of itself, is from our perspective, alpha generative. And the reason it’s alpha generative is that helicopters, when they’re built new, are typically rated for economically useful lives of 40 or 50 years. Empirically from tracking fleet retirement data, the way you would do population analysis and tracking, say, gross birth rates and gross death rates, helicopters exhibit economic lives that are even longer than that.

In contrast, commercial jets, when they’re built new, are typically rated for 20 or 25 years of economic useful life. And empirically from tracking their fleet retirement data, they demonstrate even shorter than that. So if you have two different assets that have downward sloping future value curves, in contrast to real estate, we expect our underlying asset values to decline.

And you apply error bands around those two downward sloping curves. Our sensitivity to forecast error, and we’re certainly not going to be 100 percent precise with what we’re going to recover when we go to monetize the asset has much lower impact on returns than if we were facing a steeper curve.

And so that’s on the lower risk side. On the higher return side, as I mentioned at the outset, there’s three key inputs to forecasting unlevered returns. It’s the cap rate, it’s the lease duration, and it’s your exit price as a function of your acquisition price. And because our assets are so long lived from an economic perspective our exit price as a function of our acquisition price for similar lease terms and similarly aged assets will be higher than it would be if we were investing in commercial jets.

So with the same cap rate, same age of aircraft, same lease duration, we would generate higher returns. So we’re generating higher returns with lower risk. A higher return per unit of risk in most investment frameworks is defined as alpha. And then as we pivot to the tax implications the IRS for U.

  1. taxable investors allow for depreciation of aircraft Six years or fewer. So it’s six years outside the United States and for helicopters or aircraft that are operating within the United States, they’re currently in the sunset phase of the 2017 tax cuts and jobs act which allowed bonus depreciation, a hundred percent bonus depreciation through the end of 2022 last year, 2023 was 80 percent bonus depreciation.

And the House earlier this year passed by an overwhelming bipartisan vote an extension of bonus depreciation. But as things stand right now, even if that doesn’t happen we’re in a sunset phase where 2024 will be 60 percent bonus, 2025 will be 40 percent bonus, and then we’ll revert back to what the tax code was prior to 2017, where it was five year accelerated depreciation.

So from an economic perspective, you’re getting 50 years plus of depreciation, and from a tax perspective, you’re getting six years or less. So we shield not only our income in a typical transaction, but also the tax code. But we throw off excess non cash losses that can be used to offset other passive income streams.

That investors may have. 

Ben Fraser: Yeah, that’s so interesting. So you have, you can amortize the depreciation on six, six years straight, but the useful life, like you said, could be 40 to 50 years. Does that create an issue on recapture? Cause it’s obvious if you’re selling these at. A much higher basis or profit than what is a depreciated basis.

Does that create a big recapture event when you sell or what’s how, I’m assuming you probably couldn’t sell a whole lot, how does that kind of work? 

Matt Rothschild: Yeah, so there is a recapture event but the other nice thing is, so let’s say we bought a 10 million aircraft, and we expect it to depreciate, round numbers call it 5 percent per year and so at the end of a six year lease, it would be worth 7, 000, 000.

So you’re recapturing 7, 000, 000, but you got the depreciation benefit up front of 10 right? Because so there’s an arbitrage associated with that and you get the tax deferral over that six year lease period. Which again do you benefit from from a timing perspective of deferring taxes?

Ultimately the IRS gets it by regardless, but as most real estate investors can appreciate. Anytime you can defer paying taxes it is a good strategy to try and execute on. 

Ben Fraser: Yeah. I’m so curious. 

Building a Network and Market Dynamics in Helicopter Financing

Ben Fraser: What was it like building just the network in space? Cause I imagine it’s a pretty inefficient market when you enter and maybe there are some other bigger players that are doing this, but what was that like, right?

Trying to consolidate all these different operators and how do you go and find new lessees for your projects? Your assets and how do you continue to build out the market? 

Matt Rothschild: Yeah. So I mentioned one of my partners is the origin story of Thor and I did a disservice by failing to date or to this point of mentioning my other co-founding partner.

So after Adam and I decided that there was an opportunity worth pursuing, he and I both had traditional asset management backgrounds. We started the process of recruiting our third partner and co founder and his name is Russell Christopher. Russell’s been deploying capital into commercial aviation leasing for nearly 30 years.

And he’s the one who brought the network and the domain expertise for us to execute on the deployment aspect of the strategy. We recruited him from a Chicago based firm which used to be the aircraft leasing platform owned by the Carlisle Group. And Russell led their origination and sourcing efforts.

And we recruited him to not only lead origination and sourcing for us at Thora, but also deal execution and portfolio construction. And then a few years after getting started and getting fund one mostly invested, we recruited our first non founding managing director. He’s a gentleman named Mark Schechter.

And Mark, we recruited him from the second largest helicopter specialty finance platform in the world where in his prior role there, he was head of risk for that platform. And Mark’s been deploying capital specifically into helicopters for about a dozen years at this point. And Russell and Mark lead our origination and sourcing efforts.

And we really have two broadly defined pillars of sourcing activity. One is to sell the leaseback, as I mentioned. And there while the operator universe is highly fragmented. The universe of Lessors is fairly concentrated, and so there’s conferences and events where basically all of the helicopter financiers in the world get together, and prospective lessees are aware of those conferences, and so they’ll find us, and as Thora has built a track record of both generating attractive investment returns, but also of closing on deals and being a good partner to work with as a lessor we’ve started to see a fair amount of inbound on an unsolicited basis leasing opportunities.

The second pillar of our deal flow comes from the industry dynamics, and this is true in both the commercial jet financing ecosystem as well as the helicopter finance ecosystem. Where I’ve mentioned specialty finance a few times throughout our conversation. The value, generally speaking, that specialty finance brings to the overall ecosystem is to have a consistent and somewhat perpetual outstanding offer for newly manufactured aircraft coming out of the OEMs.

In ex There’s roughly a three year lead time between placing an order for an aircraft and delivery of that aircraft. And so in exchange for having that perpetual outstanding offer and for assuming the risk of identifying a lessee counterparty in that three year window, the specialty finance community gets what is in essence, bulk volume purchasing discounts from the manufacturers.

And that’s one of the ways that they monetize the value that they bring to the ecosystem is they keep some of that discount for themselves and they pass the remaining on to their lessee customers. But universally, the specialty finance community has a corporate strategic objective of maintaining a somewhat stable average age of their fleet over time.

Definitionally everything you own in your fleet gets older by a year with each year that ticks by. And so you can lower the average age of your fleet in two different ways. You can buy new aircraft, which is part of their ongoing strategy, or you can sell old aircraft. And that’s where the investment fund community comes in because there’s two logical constituents to acquire those older aircraft.

It’s either the incumbent lessee counterparty themselves, again, using the car analogy, the same way. If your lease on your Ford Explorer was approaching maturity, you would have the option to acquire that car at its residual value or the investment fund community. And the specialty finance community and the investment fund community, while both in name are lessors, and it’s perfectly logical for people getting introduced to our strategy to assume that we compete with each other, we actually work more like long term collaborative capital partners.

Where the specialty finance community is selling older aircraft to the investment fund community. They take that cash that they get in exchange for their aircraft and use it to go out and finance their newly built funnel of aircraft that they’re acquiring from the manufacturer. 

Ben Fraser: Yeah, very interesting.

 Seems like you mentioned earlier just on some of the capital, uh, there’s some structural issues, both from a size standpoint and just a network standpoint from some of the traditional lenders. Are there structural inefficiencies that keep this as a place where you can continue to generate above market returns, due to certain things that make it difficult for new entrants to come in?

Or do you anticipate the market to become more efficient with more capital coming in, making it harder to continue to drive the alpha you’re doing right now? 

Matt Rothschild: So that dynamic between specialty finance leasing community and the investment fund leasing community, at this point has the specialty finance community with a vested interest in seeing Thora succeed.

And the reason for that is they’d like to have more competition of offering bids for their aircraft. And at this point, Thora, from what we can tell, and we’ve been at this for a while and have lots of relationships in the investment community and the service providers to the investment community.

We are the only firm that has organic sourcing capabilities within the helicopter finance market. Assuming we continue on our path to success that we’ve established thus far, we would expect more competition to come in. But we’ve aggregated a team that has complementary skill sets that is, I think, difficult to aggregate.

You needed the asset management background that Adam and I brought to the organization, and you needed the domain expertise. That Russell and Mark bring to the organization. And so it would take another unique blend of skills for someone to establish themselves as a competitor to us in the investment fund community.

That being said, lowered expected returns are driven by higher current asset prices. And if we see competition. It will likely drive up the value of the assets that we own because that’s how markets work and how you lower forward expected returns. 

Ben Fraser: That makes sense.


Future Prospects and Closing Thoughts

Ben Fraser: Matt, this was really fun. Definitely a very cool talk. Cool, unique niche that you found and glad you took the advice to be young and adventurous. And 

Matt Rothschild: I don’t know about the young part, but 

Ben Fraser: So what’s the best way for people to learn more about Thora Capital and hear what you’re doing and potentially look at some of the things you have available.

Matt Rothschild: Yeah, thanks for asking. Our website is https://thoracapital.com/. That’s T H O R A and then the word capital. Or you can hit me on LinkedIn. My name is Matt Rothschild. And I look forward to talking to anyone who’s interested. We really have a passion for educating prospects. We understand that we are a niche and unknown asset strategy.

And it’s as a result a big part of my job is getting prospects comfortable with what we’re doing and getting them to understand it. We also have a large library of content that has not only been developed in house, but also aggregated from third party sources. 

Ben Fraser: All right. We’ll put those links in the show notes.

And again, really appreciate you coming on the podcast today. 

Matt Rothschild: Thanks for having me. I really enjoyed it.


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