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Castlelake Launches New Lending Arm to Support Airline Leasing

Castlelake Launches Merit AirFinance to Expand Aircraft Lending Amid Competitive Market
Castlelake has officially introduced Merit AirFinance, a new direct lending subsidiary designed to provide debt financing to airlines and lessors for both new and used aircraft. Operating independently with its own office and a dedicated origination team, Merit AirFinance is led by Patrick Mahoney, who has transitioned from Castlelake’s aviation capital markets division. This strategic move aims to address the evolving financing needs within the aviation sector amid a highly competitive environment.
Navigating a Competitive and Dynamic Aviation Finance Sector
The launch of Merit AirFinance comes at a time when the aviation finance market is marked by intense competition from established players such as Willis Lease Finance, recognized for its strategic agility and operational expertise. Industry analysts suggest that Merit AirFinance’s entry may prompt competitors to bolster their leasing and financing portfolios. For instance, KF Aerospace has recently expanded its aircraft maintenance and support services, reflecting a broader trend of diversification and growth within the sector.
This development also coincides with a period of uncertainty in global financial markets, where investor sentiment and capital availability are influenced by perceptions surrounding Federal Reserve leadership continuity. Merit AirFinance aims to offer flexible financing solutions that cater to airlines and lessors navigating these shifting market conditions.
Challenge Group’s Fleet Expansion and Financing Strategy
Among the airlines seeking innovative financing solutions is Challenge Group, which operates three cargo airlines—Challenge Airlines IL (Israel), Challenge Airlines BE (Belgium), and Challenge Airlines MT (Malta)—alongside its own maintenance and aviation services division. Ahead of the Ishka Investing in Aviation Finance: Japan conference in Tokyo this September, Challenge Group’s CFO Daniel Ganem and Chief Investment Officer Michael Koish detailed their plans for fleet expansion.
The group intends to add six aircraft over the next 18 to 24 months, comprising two leased Boeing 777s and four owned 777s. The four owned aircraft will be purchased outright with cash from the company’s balance sheet before being refinanced. Currently, Challenge Group operates four 767-300ERBDSFs and six 747-400Fs, with an owned 777-300ER undergoing conversion and expected to enter service early next year.
Regarding financing older aircraft, Ganem and Koish explained that the current borrowing balance stands at approximately $12 million per 767, with potential to increase to around $25 million. For 747s, offers have recently reached $37.5 million for a 747-400ERF variant. Each 777 is estimated to cost between $85 million and $90 million, with a current market value near $100 million. The group targets a loan-to-value ratio of 80 percent.
Despite volatility in the freight market, Challenge Group emphasizes its resilience, citing its unique operational model focused on high-barrier, low-competition niches. Their specialization in non-standard cargo, which is less susceptible to market cycles, combined with a balanced mix of new and older aircraft, allows them to adjust capacity flexibly. The group has maintained profitability since 2010, with only one exception.
Implications for the Aviation Finance Market
As Merit AirFinance enters the market, the competitive landscape is expected to intensify, with established firms likely to respond by enhancing their own financing and leasing offerings. The aviation finance sector will be closely monitoring how new entrants and evolving market dynamics influence the future of aircraft lending and leasing.

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