Authors: Michael Allen, Asia finance editor and Oliver Clark, finance editor, EMEA and Americas for Cirium Dashboard.
In this emerging story, Cirium experts weigh-in on a merger story of leasing juggernauts GE Capital Aviation Services (GECAS) and AerCap, by far the two biggest aircraft leasing companies in the world by fleet size, with a combined 2,098 aircraft (all types) between them. More on the story from Reuters: Jet leasing shake-up looms as AerCap and GE unit discuss tie-up.
Despite being slightly smaller, AerCap’s portfolio is considerably more valuable than GECAS’s – $29.8 billion versus $19.7 billion – which places the Dublin-based lessor at the top of Cirium’s Portfolio Tracker: Q4 2020.
In addition, US-based GECAS has 253 aircraft on order, while AerCap has 286.
Recent attention has turned to both lessors with The Wall Street Journal reporting that GECAS’s parent General Electric was nearing a $30 billion deal to combine GECAS with AerCap.
Cirium has not independently verified that report. Instead, Michael Allen, finance editor for Cirium Dashboard analyses what a merger between GECAS and AerCap could mean.
Combining the leasing companies could achieve significant synergies, from negotiating with OEMs to assessing even cheaper financing in the debt market. Following the successful integration of ILFC since 2014, AerCap chief executive Aengus Kelly has focused on streamlining the business and acquiring new-generation aircraft.
Thomas Kaplan, valuations consultant at Ascend by Cirium, says: “I think a buyer like AerCap would see the most value out of the GECAS fleet and platform, particularly under the weak aviation demand environment which other parties would now consider highly risky.”
He adds: “In terms of potential buyers for GECAS, I think AerCap is the natural match. Both their leasing business models are already based on economies of scale, so this is a matter of scaling up big-time. AerCap also already have the experience of integrating GECAS-sized giant ILFC.”
The question as to how the merger will be achieved and what price is unclear at this point. Could GE end up becoming a major shareholder in a combined business?
Ascend by Cirium global head of consultancy Rob Morris points out that a joint AerCap-GECAS business would have 2,052 installed aircraft (excluding turboprops) today plus 531 on order.
“The portfolio value is our indicative market value and is significantly lower than the reported deal value since it considers only the half-life value of the asset in today’s market which of course is significantly depressed at present.
“The attached leases will significantly enhance the value of the GECAS portfolio, albeit the $30 billion being reported is still much lower than the $40 billion Bloomberg reported last year when Apollo Global Management was exploring buying GECAS for up to $40 billion.
“By merging (or AerCap acquiring GECAS), it will create a mega-lessor with a global portfolio which is 16% of the entire passenger jet leasing portfolio (or 15% by value). AerCap presently has 159 airline customers, GECAS 176,” says Morris, adding: “Only 69 are common so the combined entity would have 266 airline customers.”
Morris says Cirium data currently lists more than 970 airlines meaning that a combined lessor would be providing aircraft to more than 25% of the world’s airlines.
He describes the two lessors’ portfolios and backlogs as being “virtually identical”, although GECAS is “very active in the Boeing 737-800SF programme so gives AerCap some access to that market which might be attractive as its own -800 portfolio rolls off lease”.
Further questions and considerations surround what will be included in the sale of GECAS, will AerCap look to diversify into new areas, how will competition authorities consider this merger and will a merger between AerCap and GECAS prompt further consolidation?
The full analysis, which includes the installed and on-order data by aircraft type, is available via the Cirium Dashboard, a single-supplier solution for aviation news, data analysis and insights, providing a 360-degree view.
Find out about The Cirium Core data used in the analysis, including fleets and values data.