Bloomberg News

ILFC Takeover May Be Last Mega-Deal as Jet Lessors Embrace IPOs

January 22, 2014

AerCap Chief Executive Officer Aengus Kelly

AerCap Chief Executive Officer Aengus Kelly said, “If you own one of those businesses you can control how much you sell, so you can cash in some chips but still maintain the earnings power of the platform. I don’t think you’ll see a lot more consolidation, it’s hard to do.” Photographer: Chris Ratcliffe/Bloomberg

AerCap Holdings NV (AER:US)’s $5 billion deal last month to buy International Lease Finance Corp. caps a merger trend in the industry and may pave the way for a shift to initial public offerings, according to the man behind the move.

Aircraft leasing companies including private-equity-owned AWAS Aviation Capital Ltd. and Sumitomo Mitsui Financial Group Inc. of Japan, which paid $7.3 billion for Royal Bank of Scotland Group Plc’s aviation division in 2012, are among those likely to be considering share sales, AerCap Chief Executive Officer Aengus Kelly said yesterday in an interview in Ireland.

“I’m sure they’re looking at the IPO market,” Kelly said. “If you own one of those businesses you can control how much you sell, so you can cash in some chips but still maintain the earnings power of the platform. I don’t think you’ll see a lot more consolidation, it’s hard to do.”

AerCap’s agreement to buy Los Angeles-based ILFC from insurer American International Group Inc. (AIG:US), which gets a 46 percent stake in the merged business, will create a lessor with 1,329 planes, narrowing the gap to General Electric Co (GE:US).-owned market leader Gecas, which has 1,635 aircraft.

Below the big two are half dozen players whose owners are unlikely to want to exit the industry given record demand for new aircraft and the surge of market interest in lessors likely to be spurred by the ILFC deal, Kelly said.

Improved Valuation

“As a result of this transaction the stock-market valuation of leasing companies has improved significantly,” he said at the Global Airfinance conference in Dublin. “There’s more of a willingness to look at it.” The ILFC takeover should close in April following regulatory clearances, Kelly added.

Among listed companies focused primarily on plane leasing, AerCap has surged 147 percent in the past 12 months, while Air Lease Corp., set up by ILFC founder Steven Udvar-Hazy, has posted a 43 percent gain. Both businesses trade in the U.S.

Lessors provide close to half the more than $100 billion in financing required to fund annual jetliner purchases, with a spate of mergers paralleling consolidation among top airlines, Jeff Knittel, who runs the transportation-finance unit of New York-based CIT Group Inc. (CIT:US), said earlier this week at the Airline Economics Growth Frontiers conference, also held in Dublin.

In the past 18 months, Mitsubishi UJF Lease & Finance Co. spent $1.1 billion to buy Oaktree Capital Group LLC (OAK:US)’s Jackson Square Aviation, and Babcock & Brown Aircraft Management sold a 50 percent stake to Canada’s Onex Corp. (OCX) Earlier deals included Schiphol, Netherlands-based Aercap’s 2009 takeover of Genesis Lease Ltd. and Aviation Capital Group.’s $2.5 billion purchase of Boullioun Aviation Services Inc. from WestLB AG in 2005.

‘Blue-Chip Buyer’

Kelly also listed CIT, Mitsubishi and ACG and as companies that might be considering the IPO option.

The AerCap-ILFC merger has broken a log-jam in the industry after New York-based AIG failed to sell its leasing arm to Chinese bidders who missed specified deadlines, John Higgins, chief commercial officer at Dublin-based lessor Avolon, said in an interview at the Airline Economics event.

“It certainly removes the uncertainty around ILFC that wasn’t good for the market in general, either for aircraft values or manufacturers,” he said. “We now have clarity with a blue-chip buyer, which contrasts with a murkiness before.”

Avolon, controlled by private equity firms including Oak Hill Capital, Cinven Ltd. and CVC Capital Partners Ltd., is looking at a timeframe of two years or so for going public or finding a buyer, Higgins said. AWAS CEO Ray Sisson said in November that Terra Firma Capital Partners Ltd., owner of the Irish lessor since 2006, would seek an exit by March 2016, either via a sale or an IPO process starting this year.

While lessors have increased the percentage of aircraft funded annually to more than 40 percent from about 15 percent two decades ago, new sources of funding including wider access to capital markets mean they may have plateaued.

Airbus Group, where 44 percent of 648 deliveries were funded via lessors in 2013, expects the proportion to start easing off from this year, Nigel Taylor, director of aircraft finance, said in an interview at the Airline Economics event.

To contact the reporters on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net; Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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Companies Mentioned

  • AER
    (AerCap Holdings NV)
    • $39.4 USD
    • 0.26
    • 0.66%
  • AIG
    (American International Group Inc)
    • $56.28 USD
    • -0.16
    • -0.28%
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