Kasper
Today we’re joined by Matt Evans, a partner at Bain Capital on the special situations team. Matt leads the firm’s industrial vertical and aviation investing franchise, managing a global portfolio across equity, debt and hard assets with a particular focus on aviation leasing and structured capital solutions. Welcome Matt.

Matt Evans
Thank you, Kasper

Kasper
Matt, let’s start with your own path. You’ve been at Bain Capital since 2009 and today you lead a strategy that blends control equity, credit and hard asset exposure. What got you into this kind of investing and how did aviation become a central focus for you?

Matt Evans
Yeah, so my background’s a little bit unique. I actually started as a summer intern my junior year of college in 2008 with Bain Capital. And I’ve progressed from summer intern to partner over that time. And I’ve been with the firm since I graduated. I was actually the youngest partner at the firm ever, with the exception of our founder, which I don’t think counts, when I made partner back in 2019.

So I focused on the aviation sector throughout that entire journey. And I really credit it to the two people that were in charge of aviation at Bain Capital before me. The first was a guy named Mike Bavacqua. He was a Marine. He spent a lot of time flying around in helicopters, jumping out of helicopters. The second one was a partner named Andy Carlino, who went to the Air Force Academy and had a lifelong passion for aviation.

They really created the franchise within Bain Capital. And then after I took it over back in 2014, leading that business, I’ve really expanded it from then. So it’s been a passion of mine. It’s been a passion of the firm’s well before I joined. And for really one simple reason, aviation is a somewhat cyclical, but secularly growing space.

So 80% of the world’s population has never been on an airplane. And that number over time should continue to shrink. There should be more and more penetration of global air travel as the growing global middle class increasingly has access to this form of transportation. We think at Bain Capital that that’s one of the big global mega trends that will have some bumps along the way, certainly, but over a 10 year, 20 year plus period that growing penetration that secular growth is something that we think is a major trend and we’ve put real capital behind that and I’ve had the pleasure and the honor of leading that for 10 plus years now.

Kasper
I’m gonna have to double click on that one, Matt, because that is really an exceptional career from summer intern to partner, youngest partner at Bain Capital, barring the founder, which is, agree, an exception, for our listeners out there who want to maybe get into a career in private equity. What’s the secret?

Matt Evans
I was just fortunate to join a great firm and have had fantastic mentorship along the way. So the culture that was put in place back in 1984, the firm’s been around for a long time and it’s just permeated throughout the decades, is something that has kept me with the business for that long. And as I’ve stayed, the firm has continued to grow at a measured pace, which creates additional opportunities.

I’ve been fortunate enough to perform along that journey, which has enabled me to be where I am today. But really all the credit goes to the founders of the firm, the partnership that existed before I joined for creating such a strong culture that does enable that retention of talent over time.

Kasper
What would your best piece of advice be to somebody wanting to break into private equity and have your kind of career be?

Matt Evans
That’s a great question. Actually, we had our what we call IPO, but it’s investment professional orientation. We had that program yesterday up in Boston for the 110 or so new investment professionals that joined us this year. I got asked that same question. What I said is that I would really encourage people to focus on relationships, some of the softer things that maybe when you’re entering a career seem less important. We’re all focused on data and analytical capability and things like modeling and all sorts of hard skills. The reality is that that’s all critical. That’s all table stakes. But building a network, building relationships, building personal connections with people is really important, not just within your office, but within your industry broadly, within your organization more broadly. So if I could go back in time and give younger me advice, I would probably say to focus as much on those personal relationships, that network, the camaraderie that comes with building relationships, as much as some of the harder skills.

Kasper
That’s very good advice. Thanks for sharing that, Matt. Another thing I wanted to double click on, you’ve been investing for almost 20 years. How has your view on investing changed over almost two decades and what has been your biggest insight?

Matt Evans
That’s a great question again. I would say that the one thing that I have increasingly learned over nearly 20 years, as you say, is that the fan of outcomes is likely larger than you think. So we all come up with a base case. We all come up with an expectation on how things are going to play out. But the reality is that something unexpected always happens. Maybe you miss something in the due diligence. Maybe something happens from a macroeconomic or geopolitical perspective that completely changes the underwriting fan. So I increasingly try to think about outcomes as a range, as a fan, not as a single point. And I try to ensure that I’m thinking as creatively and flexibly as possible about how broad that range of outcomes should be. I think if you do that, then you’ll build in enough margin of safety in the investments that we make to be able to weather the storms that inevitably happen.

Kasper
Very sage advice. Obviously, most of our listeners, I think, will be fairly familiar with Bain Capital, but the aircraft leasing strategy with Griffin is of newer date and perhaps a little bit less well known. Can you tell us a little bit about the strategy, the partnership between Bain and Griffin? How’s the platform structured and how does it fit within the sort of wider Bain Capital franchise and the other strategies?

Matt Evans
Certainly. So as we talked about, I’m a partner within our special situations business. Think of that as the capital solutions franchise within the firm. We are effectively the intermediate risk and return profile that sits somewhere in between private equity and private credit. So slightly lower return, slightly lower risk than private equity, slightly higher return than private credit. That’s the mandate of special situations broadly. And one of the key areas in which we invest within our circa $25 billion AUM piece of bank capital is in hard assets. Hard assets can be anything from a data center to a piece of real estate to an aircraft. And aircraft fit in that intermediate risk and return profile. So it’s a core focus area within special situations, but my mandate broadly is much wider than just aircraft leasing within aviation. So I invest across the entire aviation ecosystem. We own several different airlines. We own several different manufacturers of airplanes or engine parts. We have a maintenance business and then of course the aircraft leasing platform. We started the aircraft leasing platform Griffin alongside our partner Ryan McKenna in late 2019 with the explicit goal of creating a best-in-class platform to be able to invest in the large passenger jet leasing space. So it was a partnership that we created with a best-in-class group of people. It started with just one partner, which is Ryan, and now that platform is circa 55 people with offices globally in all parts of the world.

So it combines really the optimal mix of professional investors, which is the team at Bain Capital, with aircraft specialists, which is the team at Griffin. And the pedigree of the people at the Griffin platform, they’re all from leasing platforms, they’re from airlines, they’re from the manufacturers, in some cases other investment firms, and it is an absolute best-in-class team of metal specialists, leasing specialists, people with relationships with airlines. So what we tried to do, and I think so far it’s been quite successful, is we tried to combine the best of those two worlds, again, professional investors and then aviation asset specialists, into a team that works seamlessly together to hopefully deliver returns to our investors.

It’s been a successful partnership. It’s been a successful platform for six plus years now. We’ve invested, or we’ve acquired over $6 billion worth of airplanes and engines. So it’s quite a scale platform and it continues to expand. And the ambition or the intention, as long as we earn the right to do this, is to have it continue to grow over the next decade plus.

So this is not a trade, this is not an investment that we move on and exit and try to find the next thing. This is a franchise that we’ve built that we hope, again, we have to earn the right every day to make this a reality, that we hope lasts through the rest of certainly my career.

Kasper
On that, Matt, as an LP, we’ve seen these types of joint ventures or JVs before. Many of them have ended in tears. Unfortunately, what are you doing differently? What makes you hopeful that this will last at least until the end of your career?

Matt Evans
Yeah, well, first of all, I’ve worked with the team, with this broader team since shortly after joining Bain Capital. This probably goes back to 2011 or so when I first met Ryan. And so we’ve had a relationship coming up on 15 years now. We also have a fully aligned partnership. So the way that we all succeed is together or we fail together, which ultimately comes down to incentives and economics and alignment. So we spent a lot of time upfront working not only on the personal relationships, which are important. It’s important to have, as I mentioned earlier, it’s important to have strong interpersonal relationships. But we spent a ton of time thinking about structure and alignment to make sure that everybody is rowing in the same direction.

I think it’s proven itself to be a very resilient model for the last six years and six plus billion dollars of assets that we’ve acquired. And the intention on all sides across my full team plus the 50 plus people within Griffin is to make this a multi-decade partnership.

Kasper
So it’s a combination of the relationships and Griffin almost being Bain Capital, almost insiders.

Matt Evans
The culture and the alignment and the approach that we all take is highly similar, which is one of the key things upfront. We wanted to be very clear about exactly how we approach the world from not just a sort of hard underwriting, hard investment perspective, but also just the values with which we approach everything that we do. And I think that that alignment really has put this on the right trajectory to be highly successful.

Kasper
Yep.

Matt, you mentioned a little bit big opportunity, also cyclical, lots of growth, but also capital intense. There is some geopolitical fragmentation going on, supply chain dislocations. So more and more risk coming. Aside from this, and on a little bit of a personal note, who wants to fly anymore? It’s an unworthy form of transportation, security, hustle through a shopping experience, flight shaming, airplane food, et cetera. Yet you’re doubling down on aviation. What are you seeing that others miss? I buy the 80%, but we still need to get them on airplanes and they still need to want to get on airplanes.

Matt Evans
It’s a totally fair question. I would say that the modern aviation ecosystem is actually quite a marvel. If you think about the ability for all of us, all the listeners, yourself, myself, certainly, if you think about our ability to pick up and move to another part of the world for a series of meetings, for a vacation, to see friends and family, it is extremely impressive what the global aviation ecosystem can accomplish. It’s safe on a relative basis if you compare it to other costs of things. It’s affordable, again, relative to hotels or ground transportation. And it’s most of the time quite efficient. If you think about moving your body from one part of the world to another and the infrequency with which we actually have problems, whether it’s delays or lost bags, etc. It’s actually a pretty impressive feat that the industry has been able to accomplish. As I said up front, the long-term data is that global air travel grows at something like two times real GDP. So it’s a secularly growing industry. It’s taking share from other parts of the global economy. And that’s really just a function of the growing global middle class increasingly being able to access air travel. So as you mentioned, 80% of the world’s population has never been on an airplane. That number should continue to tick down. And with population growth, you should continue to see that material secular growth in air travel. I don’t think that’s a fact that’s lost on people. I think investors generally understand that aviation, at least in certain pockets of aviation, is an attractive opportunity because of the secular growth. We have tried to really enmesh ourselves or steep ourselves in this industry so that we have what we hope is good connectivity across all parts of that ecosystem, which should allow us to, number one, capitalize on that secular growth that I mentioned, but number two, also avoid different pitfalls. Certainly we always focus on the upside, but the downside is just as important as the upside. So for us, it’s about creating a network, relationships, connections, and therefore insights, hopefully, that allow us to take advantage of that growth while also avoiding some of the challenges that can come with different elements of this industry.

Kasper
Okay, fair point. So people will keep flying, they may just not put it on Instagram or Facebook.

Matt Evans
I think different parts of the world have slightly different approaches to that in different countries. But I think that long term, certainly there’s consciousness about emissions. There’s certainly consciousness about the footprint that air travel has. And that’s one of the things that we’re investing behind. So new airplanes, as you likely know, are 20 to 25 % more efficient.

Kasper
Fair point.

Matt Evans
Which means they burn 20 to 25 % less fuel and therefore emit 20 to 25 % less emissions than the prior generation. One of the key initiatives that we have is to invest behind that upgrading thematic. So it’s manufacturers that are facilitating the production of new, more efficient airplanes. It’s leasing airplanes that are the most in demand, most efficient assets.

So I think that that certainly is a trend and there’s definitely a consciousness and awareness of that. But there’s also ways for capital like ours to help facilitate progression in that area.

Kasper
Many investors nonetheless, I think, look at aviation, maybe wrongly, but as binary, it’s feast or famine. Is that correct in your view, or are we misunderstanding something as LPs? What makes the strategy sustainable and scalable?

Matt Evans
There’s all sorts of parts of the aviation ecosystem and investing in different parts of the industry certainly comes with different positives and negatives. So there’s the airline sector, which I think is when people think about the volatility, people think about feast and famine, it’s really focused on the airline industry, which does tend to have the greatest cyclicality. The other parts of the industry, notably the aftermarkets of repairing aircraft, producing new aircraft or leasing aircraft, which is effectively a financing tool for airplanes, those are much, much less cyclical than airlines. If you look at long-term air travel statistics, you actually saw that travel was flat to even growing through the prior to downturns, the prior to major downturns before the pandemic. Those being the recession, post 9-11 in the US, and then the global financial crisis. You actually saw air travel at worst flat during those two periods, which surprises many people, that global air travel really was flat during the financial crisis. The outlier to that certainly is the pandemic, where global air travel fell off, obviously recovered relatively quickly. But if you think about those prior two downturns, having flat air travel, that means that the demand for airplanes, the demand for aftermarket services, the demand for leasing was not particularly cyclical even during very impactful global economic or geopolitical events. So think it’s the way we think about it is just to approach each subsector of the industry differently and be mindful of the different levels of cyclicality across the different sectors.

Kasper
So sectors like leasing and manufacturing, if I get your point right, will probably also, from an investor perspective, fare quite well even in the face of another pandemic.

Matt Evans
They tend to be much less cyclical. They tend to be very predictable. As you said, the pandemic was a bit of an outlier where it was a sort of globally coordinated near cessation of air travel, which was totally different than those prior couple of downturns. And yet during that period, most companies that were in, whether it’s the aftermarket, manufacturing, or financing leasing, fared.

actually reasonably well. Airlines had a hard time. Airlines in many cases needed some form of capital injection or government support, but those other subsectors within the industry performed actually quite resiliently despite the unprecedented shock that was coming. ⁓

Kasper
So here it’s about really looking below the headlines and finding out what are the different niches and how do you approach the different niches.

Matt Evans
Exactly. It’s really just looking at the data of what drives the different subsectors. So demand for airplanes is what drives manufacturing. It’s a backlog based business. If you want to order a new narrow body today, it’ll take you seven or eight years to get one. So that creates a lot of predictability. Leasing again is a financing tool for aircraft. And when the hundred plus billion dollars or so of new airplanes are being delivered each year from that backlog,
that I just mentioned, airlines need a financing tool, which leasing is a very efficient financing tool for those assets. So it’s really all about looking at the data and looking at really what drives the different subsectors to understand where there is cyclicality and where the cyclicality is less.

Kasper
I have to ask here, Matt, and forgive my ignorance, but how long does a lease on an aircraft typically run?

Matt Evans
It depends. Brand new airplanes, the market standard is 12 years. For older airplanes, after their first lease, the lease terms tend to shrink. But for a new airplane, the market standard is 12 years.

Kasper
So that is very nice long-term predictable cash flows.

Matt Evans
Exactly. It has elements of fixed income to it. ⁓ Many people use leasing, and many investors use leasing, aircraft leasing, or other equipment leasing as an alternative to a fixed income allocation because it has similar elements, the downside protection from a physical asset, the long-term contractual cash flows from that lease. So that does provide some pretty good predictability.

Kasper
Yeah.

Matt Evans
We have to be very thoughtful about the counterparties to which we are leasing assets because ultimately if an airline defaults, we may not get that full contractual 12 year lease payment, similar to having an issuer of a bond or an issuer of a term loan default. We have to do thoughtful underwriting of those, those counterparties. But as long as we do our job right and lease to strong credits and structure the transactions appropriately, then you can feel pretty good about receiving that that long-term stream of cash flows.

Kasper
You alluded to it a little bit earlier the sort of platform advantage, if I may call it that, that you have alongside Griffin. But can you talk us through how does that vertical integration give you a competitive edge and what can you possibly do that others might not be able to do that do not have the same vertical integration?

Matt Evans
That’s a great question. I’ll give you one example to hopefully highlight how that vertical integration can be helpful. In the middle of 2020, so this is depth of the pandemic, this was pre-vaccine development, Bain Capital bought Virgin Australia, which is the number two airline down in Australia, number two behind Qantas. The business had struggled leading up to the pandemic, and then the pandemic really just tipped it over the edge.

We came in with a big global team across Bain Capital. There was probably 30 plus people across the firm, across different offices, across different business units, from special situations to private equity, and acquired that business. My specific role within that acquisition was to restructure all of the company’s aircraft leases and loans.

So I was responsible for taking what was a hodgepodge of about 160 different airplanes, seven or eight different aircraft types, and bringing that to a much more focused portfolio centered around the 737NG. And so I sat on the airline side as the owner of the airline negotiating against all of our leasing counterparties, which for the Griffin platform, for example, are really our competitors. So I think it’s a pretty unusual situation where you have somebody that restructured a major airline and who has the experience of sitting on the airline side during a process like that, negotiating against people that actually look like our Griffin platform to create a more efficient airline. So I think there was some real insights that were driven from that, certainly it works in both directions. Our aircraft leasing experience helped us be more effective through that process. But I think that that, as I look forward to what we’re doing across aircraft leasing, the experience of owning three different airlines that we own today, restructuring a big business like that, knowing how to structure the leases in a way that avoids some of the pitfalls that some of the lessors ran into there is a major driver of that.

There’s a few other examples, but I think that’s a great one of how being sort of steeped and immersed in this industry for many years is helpful across all of our investments.

Kasper
It’s very illustrative and I can certainly see how that does confer an advantage when you’re dealing with counterparties. When you then talk to LPs, what are they most focused on in your conversations? It’s a bit of a new sort of sector niche investment area for us. What concerns them?

Matt Evans
Yeah, well first in terms of just overall understanding of the industry, it’s a pretty large asset class. So there’s something like a trillion and a half dollars worth of passenger jets that are flying around and close to two thirds of those are leased. So it’s a pretty large addressable market, call it a trillion dollars worth of assets that many people don’t sort of grasp.

But it’s a large industry that’s been around actually for a number of years. In conversations with LPs, really the focus is on how this fits into an overall portfolio, largely within, as I said earlier, a credit plus allocation or a real asset type allocation. So people want to understand the return profile, how the cash flows work, how the long-term leases effectively function like a fixed income investment. They want to understand the residual value of the assets because ultimately we own the asset at the end of the day. We own that underlying hard asset. And so people want to understand how we monetize that asset. People want to understand how we finance the assets. So we own the airplanes, but we apply third-party debt against these assets to enhance the equity returns to our funds and having a very efficient form of financing is critical to generating good returns. And then of course, people want to know what can go wrong. People want to know what happened during the pandemic. How did the asset class perform during that? They want to know what could go wrong with individual counterparties. What happens if an airline defaults, how do we go and physically take back that asset and release it? All those things, I think, have proven themselves over many years for this industry to be a relatively resilient sector. It’s a by definition mobile asset. So if a counterparty defaults, one can go grab that asset and release it. The performance through prior downturns, especially for new in-demand fuel efficient airplanes has been quite resilient despite macro volatility. So truly walking people through the sources of return and then the things that we sensitize to, the things that we think about at our investment committee that could go wrong with those investments.

Kasper
So two points I take away from that. This is a scale type of investment. You need to have a certain size to access capital or external capital that allows you to make the leases. And the second thing I take away, and that’s for the LPs, this belongs inside the private credit, the private debt bucket, whatever it is they may be calling it.

Matt Evans
In terms of scale, the segment of the market in which we focus on with the Griffin platform certainly requires scale. That segment of the market is new, large passenger jets. They’re expensive. Narrow-body aircraft is going to be $50 million, plus a wide-body aircraft is going to be in the nine-figure plus cost. So that segment of the market does require scale. It requires scale to be able to interact with big counterparties like British Airways or Air France, they don’t want to deal with small players. It requires scale to have relationships with the manufacturers. It requires scale to have efficient financing in place. Certainly that’s the case. There are other subsegments of the market, trading individual components, trading individual engines or older airplanes that don’t require that same level of scale, but certainly where we choose to participate within this platform specifically the highest quality segment of the aircraft market does require scale. In terms of allocation, some people put it into a credit bucket, private credit, alternatives of private credit. Some people put it into a real assets bucket. Some people put it into a sort of catch-all yield type bucket. But really, as I said, it’s that intermediate risk and return profile that’s going to be lower risk, but also lower return versus a venture capital investment or private equity investment. But it should be an alternative that’s slightly higher returning versus a more traditional credit investment.

Kasper
Matt, what kind of trends are you watching closely? And I think of this both in the sort of risk context and the opportunity context. Fleet modernization is one. What about ESG pressures, geopolitical realignment? What are you thinking of there?

Matt Evans
Probably the biggest thing that I’m focused on right now is supply and demand. Most things within investing ultimately come down to supply and demand, and I think that’s certainly true for aircraft. And some elements of that are positive, and some elements of that are things to watch out for. Maybe first on demand, as I may have mentioned, global air travel tends to be relatively predictable in terms of its growth rate, and it’s a secularly growing demand picture. Demand right now is robust despite geopolitical issues, despite economic pockets of weakness globally, overall demand for air travel is robust and therefore overall demand for airplanes and therefore leasing is strong.

Supply is very constrained for new airplanes for a number of reasons. There was a number of airplanes that would have been built over the past five or six years that just weren’t for a few different reasons. First, you had the 737 MAX grounding after the tragic crashes that happened there. Production stopped for a period of time. Then you had the pandemic, where the OEMs, the manufacturers took down production rates. And now you’ve had what people term supply chain challenges, but were really production issues across both the engine manufacturers and the OEMs, Boeing and Airbus. The combination of all those things was there were several thousand airplanes that should have been built that were not built over the past few years. You couple that with some reliability problems that especially the engine manufacturers are having right now, which means aircraft are less available than they should be even once they’ve been built. And you have a fairly significant and growing shortage of airplanes. Airlines today are reacting to that by stretching the useful life of airplanes or flying an aircraft for longer than they otherwise would; not retiring it when they had initially planned. At some point continued to stretch the useful life of older assets becomes really inefficient economically inefficient for these airlines. So I think we’re setting ourselves up the global industry is setting itself up for a shortage that exists today, but a shortage that’s likely to become pretty acute over the next three to five years. That creates certainly risks for certain parts of the industry, but it also creates opportunity, especially within the leasing product, where ultimately we own a physical hard asset and a supply demand imbalance, as I just said, should result in pretty good value retention
on those assets. But that’s really the key megatrend that I am watching across the aviation industry right now.

Kasper
Fantastic.

Matt, I think we have just time for a lightning round if you’ll stick around for another five minutes. One thing that LPs get wrong about aviation investing?

Matt Evans
Cyclicality versus long-term secular growth. Think the cyclicality certainly exists within certain pockets, but the long-term 40-plus year graph of air travel shows a pretty inexorable growth trend marked by a couple of pockets of weakness, but it really is a resilient and secularly growing space.

Kasper
So look at the data. A sector outside of aviation that fascinates you right now?

Matt Evans
I’m spending a decent amount of time on US manufacturing businesses. Not a political statement, more of just a reality of how US industrials are trying to reorient their supply chains, whether it’s for political reasons or tariff concerns, but probably more acutely because of the experience that they had through the pandemic, where supply chains that were global, that were complex, became really tricky to manage. And so there is a, we think, a five to 10 year trend that is investable, which is sort of the US manufacturing revitalization. And we’re spending a decent amount of time thinking about ways to express that.

Kasper
Okay, so something for LPs to keep an eye on.

Matt, this has been a fantastically insightful and for me at least, a very sort of learning conversation about aviation investing. We went through how to make partner. There was a good tip for those out there looking to make a career in private equity. We went through how this is a cyclical but very growing business and you need to look beneath the surface and find the niches that are less cyclical. The fact that 80%, that’s a mind blowing figure of the world’s population has never been on an airplane and that you’ve got two times GDP growth, also some very favorable tailwinds. How to build a good JV, I like that as well. I think that goes for all the GP listeners out there, they might want to take that. How flying is safe, affordable and efficient, something we may not always think about when we hear the headlines. And how the aviation industry is actually very large. It goes beyond just the aircraft leasing and it goes into all these sub-sectors. So absolutely fascinating to speak with you today. A one trillion market, something to watch out for and maybe also for LPs to start looking at the revitalization of American industrials. Thank you Matt for being with us.

Matt Evans
Thanks, Kasper, appreciate your time.