Dublin, Ireland-based aircraft lessor, AerCap takes over its rival General Electric Capital Aviation Services (GECAS), headquartered in Stamford, Connecticut. Provided the deal is consented by the antitrust authorities, this will create the largest aircraft leasing company by far. Jointly, they will manage over 2,600 aircraft worldwide, both narrow-bodies and wide-bodies, including a large fleet of freighter aircraft.
Last Wednesday's merger announcement, aired simultaneously by both GECAS and AerCap, sent a tremor through the aviation industry. Once accomplished, a dominating lessor is created, around four
times the size of Avolon in which the financial troubled Chinese HNA Group holds a majority stake.
GECAS becomes AerCap
In the press release, it is said that GECAS parent GE will receive consideration valued at more than $30 billion, including approximately $24 billion in cash, 111.5 million ordinary shares equivalent to approximately 46% ownership of the combined company, with a market value of approximately $6 billion as of 09MAR21, and $1 billion paid in AerCap notes and/or cash upon closing. Both companies will be listed under the name AerCap, which means the end of GECAS’ brand, after 54 years of existence.
“The combined company will have stronger revenues, cash flows and earnings, and greater customer diversification,” both firms argue in their announcement. Market observers, however, point to GECAS' ongoing restructuring program, which includes selling parts of its ‘silverware’. Simultaneously, partner AerCap's business tends to be rather sluggish, as evidenced by the company’s net loss of $299 million in 2020. This was mainly caused by canceled leasing agreements following the sharp drop in passenger demand as a reaction to the pandemic.
Got a freighter for me?
Conversely, carriers like Amazon Prime Air, Kalitta Air, Russian S7, Garuda Indonesia, or Ethiopian Airlines, to name but a few, decided to up their fleets recently by leasing GECAS freighters. Their appetite for freighter aircraft grew rapidly, caused by the lack of belly hold capacity during the Covid-19 pandemic, and extraordinary price levels. These market conditions in cargo benefitted leasing companies most. Particularly GECAS, which offers potential users a broad portfolio of all-cargo aircraft ranging from small (B737-400SF) to large (747-8F), whereas AerCap’s website does not mention any freighter owned or managed by the Irish specialist.
Leasing outgrows buying
In any case, analysts expect the leasing business to pick up again as soon as international air traffic experiences a revival. This should benefit aircraft lessors since a stunning 47% of the world’s commercial aircraft fleet is leased. A figure that has quadrupled in the past 20 years, clearly evidencing a remarkable trend in commercial aviation.
What makes leasing aircraft attractive, including sale and lease-back deals, is the low capital commitment compared to purchasing. It is also easier for airlines to return rented aircraft to their owners, should market conditions deteriorate, which is otherwise impossible if they wholly own their fleets.
In the medium term, the concentration in the leasing industry jointly kicked off by market leaders AerCap and GECAS, should lead to rising rates for customers, market experts forecast.
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