Terra Firma lands Pegasus for $5.2bn

Guy Hands’ buyout firm is creating the world’s third largest airplane leasing company with an enterprise value of around $7.5bn by merging Pegasus and AWAS, an existing portfolio company.

Terra Firma, the European private equity group headed by Guy Hands, has shrugged off its disappointment at losing in the battle for UK retailer Boots Alliance to acquire the Pegasus Aviation Finance, an airplane leasing business,  for $5.2 billion (€3.9 billion)

It is Terra Firma’s second-largest deal to date, behind its $8.8 billion buyout of German property firm Viterra in 2005.

Terra Firma is using its existing aircraft leasing portfolio company AWAS to acquire Pegasus from investment funds managed by Oaktree Capital Management, the US firm which yesterday revealed plans to list.

The transaction will be made from Terra Firma’s latest fund with $900 million in equity and the remainder in assumed debt, according to one adviser familiar with the deal. It will create the world’s third largest aircraft leasing business with an enterprise value of about $7.5 billion.

Since 2004, Pegasus, led by chief executive  Richard Wiley, has built a fleet of 82 owned aircraft, 94 managed aircraft, and a pipeline of 37 aircraft on forward orders.  The pipeline includes the latest new-technology and fuel efficient narrowbody and widebody aircraft such as the Boeing 787 Dreamliner, expected in 2009.

Terra Firma acquired Irish AWAS in March 2006 and currently leases 134 aircraft to 72 airlines across the world.  

JP Morgan advised Terra Firma on both deals. Merrill Lynch acted as financial adviser to Pegasus and Paul Weiss Rifkind, Wharton & Garrison acted as legal counsel to Pegasus. Clifford Chance acted as legal adviser to AWAS and KPMG as accounting adviser to AWAS.