A GE-AerCap Deal Would Add Pressure on Boeing and Airbus
By Doug Cameron
Aircraft-leasing companies already account for half the world's
jetliner fleet, and a deal that would combine the two largest
players is expected to have knock-on effects for airlines and the
two dominant plane makers, Boeing Co. and Airbus SE.
On Tuesday, AerCap Holdings NV said it was in discussions with
General Electric Co. about its GE Capital Aviation Services leasing
unit. A deal would create a leasing company with more than 2,000
planes and another 500 on order, renting to hundreds of carriers.
The Wall Street Journal reported Sunday that AerCap was in talks to
combine with Gecas in a deal worth more than $30 billion.
The creation of a new industry giant would likely to do two
things. It could give airlines less-expensive planes, as a larger
leasing company can secure better prices from Airbus and Boeing. It
could also intensify competition with plane makers trying to sell
new planes at a time when the industry tries to recover from the
pandemic-driven travel downturn that has left thousands of planes
"It's going to be a buyer's market for airlines," said Eric
Bernardini, a managing director at AlixPartners LLC, a consulting
firm. "The lessors are going to be competing with the plane makers
to place aircraft."
Boeing declined comment. The aircraft maker has previously said
it works closely with leasing companies, which company executives
said helped the industry by moving planes around to fill shortages
in demand. Airbus said it maintained a good relationship with
AerCap and Gecas and declined comment on any potential
The aircraft-leasing industry developed in the 1970s, initially
serving weaker airlines that couldn't afford to buy planes
themselves. Lessors order in bulk and secure cheaper funding,
passing on some of the savings to airlines. Carriers rent planes,
usually for five to 12 years, rather than buying them outright,
keeping debt off their balance sheets.
The business has now gone mainstream. Delta Air Lines Inc.,
JetBlue Airways Corp. and Southwest Airlines Co. are among carriers
selling planes they ordered themselves to leasing companies and
renting them back. That relationship has made big aircraft-leasing
companies a vital source of cash for airlines over the past year.
The jet sales raised billions of dollars, and the cash boost comes
on top of lessors agreeing to defer some rent on existing
John Plueger, chief executive of Air Lease Corp., a big aircraft
lessor, said on an investor call last week, "I believe that without
us and the leasing community, the airline industry would be in far
worse shape than it is today."
With more than 900 aircraft owned or managed for other
investors, Gecas is surpassed only by AerCap in fleet size. It
leases passenger aircraft made by Boeing and Airbus -- -- many with
GE-made engines -- -- as well as regional jets and cargo planes to
customers ranging from flagship airlines to startups. Gecas had
$35.9 billion in assets as of Dec. 31.
AerCap has a market value of $7.5 billion and around 1,050
aircraft owned or managed, as well as almost 300 on order. The
company has experience in deal making, paying around $7.6 billion
in 2014 to buy International Lease Finance Corp. from American
International Group Inc.
Still, the aircraft-leasing market remains fragmented, limiting
antitrust barriers to any combination. A merged AerCap and Gecas
entity would have around 7% of the global jetliner fleet and 4% of
Airbus and Boeing orders, according to Jefferies, a bank.
The big leasing companies have concentrated their buying on the
most popular planes, including the Airbus A320neo and Boeing 737
MAX narrow-body jets most commonly used on domestic and shorter
routes. Their fleets of wide-body jets used on international routes
are concentrated in the Airbus A350 and Boeing 787 Dreamliner. This
allows them to shuttle the planes between customers if demand drops
in one region, even repossessing them if a carrier gets into
Lessors usually don't want to buy the first planes off the
production line, which can have teething problems, as well as the
last, which often have trouble holding their value.
Shares in aircraft-leasing companies fell along with much of the
market in the early days of the pandemic as airlines grounded
aircraft and sought breaks on rent. But many of the major lessors'
stocks have recovered since as lockdowns ease and the outlook for
travel starts to improve.
However, AerCap and Gecas have both taken write-downs on the
value of some remaining older aircraft.
Write to Doug Cameron at email@example.com
(END) Dow Jones Newswires
March 09, 2021 13:35 ET (18:35 GMT)
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