AerCap-ILFC Deal Heralds Return to Stability

 - December 23, 2013, 11:00 AM
ILFC’s order book includes 74 Boeing 787s (top). Its portfolio also features several Boeing 777s (middle) and 737s (bottom). (Image: Boeing)

Amsterdam-based AerCap’s planned acquisition of International Lease Finance Corp. from American International Group stands to return a sense of stability to a business in which the disposition of one of two dominant players hung in doubt for more than a year. It also promises to result in what AerCap CEO Aengus Kelly characterized as “the most attractive order book in the industry,” valued at $25 billion. The future deliveries, combined with the fact that 85 percent of the value of the existing fleet would consist of Airbus A320s, Airbus A330s, Boeing 737NGs and Boeing 777s, represents “substantial future embedded growth with attractive aircraft types and favorable pricing and delivery dates,” according to AerCap. All told, the merged company would carry total assets of $41 billion, a fleet of more than 1,300 airplanes and an order book consisting of another 385.

Analysts consider the deal a welcome development for the world’s airliner manufacturers given the uncertainty associated with AIG’s extended effort to sell the “non-core” unit to Chinese concerns. “It was obvious something had to happen,” Adam Pilarski, senior vice president of aviation consultancy Avitas, told AIN. “AerCap knows what it’s doing. These people live this business. “

Pilarski didn’t think the deal would upset the competitive balance in the leasing business, where ILFC and Gecas dominate and some five “second-tier” lessors all seem to claim the third position, he said. “Overall, this does not signal a big structural change in the industry. But, on balance, I think it’s a good thing. Some of the people [working for the companies] might not have a merry Christmas [due to redundancies]. It’s unlikely the top people [at ILFC] will stay.”

The value of the transaction, which includes $3 billion in cash and 97.5 million newly issued AerCap common shares, totals some $5.4 billion based on AerCap’s closing price per share of $24.93 on December 13. Expected to close in the second quarter, the deal effectively ends AIG’s efforts to sell most of ILFC to Chinese investors. Before entering into the agreement with AerCap, AIG terminated the share purchase agreement with Jumbo Acquisition Ltd. for the sale of up to 90 percent of the common stock of ILFC.

The transaction remains subject to various regulatory approvals and the consent of AerCap’s shareholders. Waha Capital, AerCap’s largest shareholder with a 26-percent stake, has agreed to vote in favor of the transaction.

“This transaction creates a strong foundation for ILFC and positions it for continued market leadership and strategic growth,” said AIG president and CEO Robert Benmosche. “ILFC is a valuable business…However, as we have said all along, the aircraft leasing business is not core to our insurance operations. Upon completion, the transaction will have a positive impact on AIG’s liquidity and credit profile and will enable us to continue to focus on our core insurance businesses.”