Aircraft leasing companies already account for half of the world’s passenger jet fleet, and a deal combining the two biggest players is expected to have knock-on effects for airlines and the two dominant aircraft manufacturers, Boeing. Co.
and Airbus SE.
On Tuesday, AerCap Holdings NV said it was in talks with General Electric. Co.
about your GE Capital Aviation Services leasing unit. GE declined to comment. One deal would create a leasing company with more than 2,000 planes and another 500 orders, leasing out hundreds of carriers.
The Wall Street Journal reported Sunday that AerCap was in talks to merge with Gecas in a deal worth more than $ 30 billion.
Creating a new industry giant envisions doing two things. It could mean that airlines get better deals on planes, as a larger leasing company can negotiate lower prices with Airbus and Boeing. It could also intensify simmering competition between lessors and aircraft manufacturers trying to get orders from carriers as they look beyond the pandemic-driven travel recession that has left thousands of planes parked.
“It’s going to be a buyer’s market for airlines,” said Eric Bernardini, managing director of AlixPartners LLC, a consulting firm. “The lessors are going to compete with the airplane manufacturers to place airplanes.”
Boeing declined to comment. The aircraft maker has previously said it works closely with lessors, which company executives say helped the industry by moving the planes to meet demand. Airbus said it had a good relationship with AerCap and Gecas and declined to comment on any potential transactions.
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 financing, transferring part of the savings to the airlines. Carriers rent planes, usually for five to 12 years, rather than buying them outright, keeping the debt off their balance sheets.
The business has now gone mainstream. Delta airlines Inc.,
JetBlue Airways Corp.
and Southwest Airlines Co.
They are among the carriers that sell and lease planes they ordered from leasing companies. That relationship has made large aircraft leasing companies a vital source of airline cash over the past tumultuous year. Aircraft sales raised billions of dollars, and the cash increase was added to the lessors agreeing to defer some of the leasing of existing jets.
“I believe that without us and the leasing community, the airline industry would be in a much worse situation than it is today,” said John Plueger, CEO of Air Lease. Corp.
, a large aircraft lessor, said in an investor call last week,
With more than 900 aircraft owned or managed by other investors, Gecas is second only to AerCap in fleet size. It rents airliners made by Boeing and Airbus, many with engines made by GE, as well as regional jets and cargo planes to clients ranging from flagship airlines to startups. Gecas had $ 35.9 billion in assets as of December 31.
AerCap has a market value of $ 7.5 billion and about 1,050 owned or managed aircraft, as well as nearly 300 orders. The company is experienced in doing business, 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 diminishing the likelihood of an antitrust challenge to a combination. A merged entity of AerCap and Gecas would have about 7% of the world’s passenger jet fleet and 4% of Airbus and Boeing orders, according to Jefferies, a bank.
Large leasing companies have concentrated their purchases on the most popular aircraft, including the narrow-body Airbus A320neo and Boeing 737 MAX aircraft most widely used on domestic and shorter routes. Its fleets of wide-body aircraft used on international routes consist primarily of Airbus A350 and Boeing 787 Dreamliners. This concentration allows lessors to move planes between customers if demand falls in a region, and even take them back if a carrier runs into trouble.
Leasing companies generally do not want to buy the first aircraft on the production line, which may have initial problems, as well as the last one, which often has trouble maintaining its value.
Shares of aircraft leasing companies fell along with much of the market in the early days of the pandemic when airlines grounded planes and sought rent cuts. But many of the major lessors’ shares have since rallied as closings decline and the outlook for travel begins to improve.
However, AerCap and Gecas have written down the value of some remaining older aircraft.
Write to Doug Cameron at [email protected]
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