GE-AerCap's $30 Billion Deal Adds Pressure on Boeing and Airbus
By Doug Cameron
General Electric Co. agreed to combine its aircraft-leasing
business with Ireland's AerCap Holdings NV as part a deal valued at
more than $30 billion and seen pressuring jet prices and plane
The Wall Street Journal earlier reported news of the deal on
GE will get about $24 billion in cash and 46% ownership in the
new merged company. It will transfer about $34 billion in net
assets to Aercap along with more than 400 workers. The deal is
expected to close in nine to 12 months
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. GE declined to comment. A deal would create a leasing company
with more than 2,000 planes and an additional 500 on order, renting
to hundreds of carriers.
The creation of a new industry giant figures to do two things.
It could mean airlines get better deals on planes, as a larger
leasing company can wrangle lower prices from Airbus and Boeing. It
could also intensify long-simmering competition between lessors and
plane makers trying to secure orders from carriers as they look
beyond the pandemic-driven travel downturn that has left thousands
of planes parked.
"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 to comment. The aircraft maker has previously
said it works closely with lessors, which company executives said
helped the industry by moving planes around to meet demand. Airbus
said it maintained a good relationship with AerCap and Gecas and
declined to comment on any potential transaction.
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
tumultuous year. The jet sales raised billions of dollars, with the
cash boost coming on top of lessors agreeing to defer some rent on
"I believe that without us and the leasing community, the
airline industry would be in far worse shape than it is today,"
John Plueger, chief executive of Air Lease Corp., a big aircraft
lessor, said on an investor call last week.
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, likely
lessening the chance of an antitrust challenge to a 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
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
consist mainly of Airbus A350s and Boeing 787 Dreamliners. This
concentration allows lessors to shuttle the planes between
customers if demand drops in one region, even repossessing them if
a carrier gets into trouble.
The leasing companies 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
planes 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 firstname.lastname@example.org
(END) Dow Jones Newswires
March 10, 2021 06:51 ET (11:51 GMT)
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