Aircraft-leasing companies already account for half the world’s jetliner fleet, and a deal combining the two largest players could mean airlines get better deals on jets, as a larger leasing company can wrangle lower prices from makers Boeing Co. and Airbus SE. The deal also could 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.” The deal between GE and AerCap creates a leasing company with more than 2,000 planes and an additional 500 on order, renting to hundreds of carriers.
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 existing planes.
“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 by 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 Jefferies.
The big leasing companies have concentrated their buying on the most popular planes, including the Airbus A320neo and Boeing 737 MAX narrowbody 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.
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 existing planes.
“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 by 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 Jefferies.
The big leasing companies have concentrated their buying on the most popular planes, including the Airbus A320neo and Boeing 737 MAX narrowbody 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.
Via (Wall Street Journal)
