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$30 Billion Merger Between AerCap and GECAS Tilts New Momentum Toward Aircraft Leasing

Madhu Unnikrishnan

March 10th, 2021 at 2:31 PM EST

AerCap’s $30 billion acquisition of General Electric’s aircraft-leasing arm, GECAS, is a bet by the Ireland-based lessor that cost-conscious airlines globally will be shifting more broadly to leasing aircraft rather than owning.

The deal will create a leasing behemoth, with more than 2,000 aircraft under management, 900 aircraft engines, and 300 helicopters. AerCap will acquire GECAS for $24 billion in cash, $1 billion in AerCap notes, and 111.5 million AerCap shares, giving GE a 46 percent stake in the combined company, which will continue to be known as AerCap. The company expects the combination will yield $7 billion in annual revenue.

AerCap and GE say the deal is expected to close in the fourth quarter of this year, after regulatory review both in 20 countries. Both companies are “confident” the deal will not raise antitrust concerns, AerCap CEO Aengus Kelly told investors on Wednesday in a call detailing the deal. It is worth noting, however, that AerCap and GECAS currently are the largest and second-largest lessors.

Globally, airlines are moving toward leasing, rather than owning, their fleets, both AerCap and rival Air Lease Corp. recently said. This trend only will accelerate as airlines emerge from the Covid downturn. Buying aircraft will be a harder argument to make to their boards, as airlines will be focused on paying down debt and any obligations they have to governments that offered loans as part of state aid “and not to send money to the OEMs,” Kelly said earlier this month during the company’s fourth-quarter and full-year 2020 earnings call.

A second trend that AerCap thinks the deal positions it to capitalize on is airlines’ expanding their fleets of advanced narrowbody aircraft, like the Airbus A320 Neo family and the Boeing 737 Max. A majority of GECAS’ fleet now is comprised of narrowbody aircraft. By 2024, the company expects two-thirds of its fleet to be comprised of narrowbodies, weighted toward “next generation” aircraft, like the 737 Max and the A320 Neo family. By that year, AerCap expects to have 75 percent of its fleet made up of next generation aircraft.

In its earnings call, AerCap said future demand for advanced narrowbodies will only grow, although the company remains committed to widebodies, particularly advanced aircraft like the Boeing 787 and the Airbus A350. “AerCap leased 200 widebodies in the last two years, or one every 10 days,” Kelly said on Wednesday. “No other company has that capability.”

With 2,000 aircraft under management, AerCap will be a formidable force for the two airframers, Boeing and Airbus, to contend with and likely will gain a larger say in the design of future aircraft programs.

GE has been steadily divesting assets as the conglomerate seeks to focus on its core businesses, one of which is its aircraft engine unit. The deal with AerCap gives the Irish lessor 900 aircraft engines, mostly CFM 56 and CFM Leap engines used on narrowbodies like the Max and the Neo. But AerCap will not get preferential deals on maintenance, nor will the company be locked into selecting GE engines on future aircraft purchases, Kelly said.

AerCap also will acquire GECAS’ helicopter leasing portfolio, although it will comprise less than 10 percent of the combined company’s aircraft assets. The oil and gas industry is the primary customer for helicopters, and demand is rising now that oil prices have rebounded, Kelly said.

AerCap’s last significant acquisition was in 2013, when it bought ILFC from AIG for $28.1 billion.

Madhu Unnikrishnan

March 10th, 2021 at 2:31 PM EST

Photo credit: AerCap's $30 billion acquisition of GECAS will create the world's largest lessor, with 2,000 aircraft under management.  AerCap

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