General Electric (GE) is near a deal to merge its aircraft leasing subsidiary General Electric Capital Aviation Services (GECAS) with AerCap, another leading aircraft leasing company.
The deal, estimated to have a market valuation of around $30 billion, would combine GE’s aircraft leasing arm GECAS and AerCap, an Ireland-based aircraft lessor. The two companies are one of the largest aircraft lessors in the market, as GECAS owns or has on order approximately 1,650 airctaft. Meanwhile, AerCap, which also acquired International Lease Finance Corporation (ILFC) in 2014 to grow into one of the leading companies in the market, with 939 owned and 286 aircraft on order.
The two companies should announce the deal, if it will happen, on March 8, 2021, reported the Wall Street Journal (WSJ), citing sources familiar with the matter.
Aircraft lessors suffered throughout the COVID-19-induced crisis, as drying revenue streams within airlines have resulted in pleas to defer lease payments. As of January 2021, GECAS has a $400 million deferral balance, as customers have paid 84% of their invoices. In addition, the leasing company had 27 Aircraft on Ground (AOG), which was primarily driven by repossessions, according to GE’s latest financial results announcement. GECAS ended 2020 with a loss of $786 million, including an $836 million Goodwill charge booked at the end of Q2 2020. A year prior, the aircraft lessor ended 2019 with a net profit of $1 billion.
AerCap ended the year with a net loss of $299 million, while in 2019, it managed to achieve a net profit of $1.1 billion. Comparing the results of the two years, AerCap lost $519 million of revenue alone. Furthermore, it had to write-off a $1 billion asset impairment charge that was “related to lease terminations and sales transactions and were partially offset by related maintenance revenue,” read the company’s 2020 result announcement.
Nevertheless, 2020 still had a few bright spots for aircraft leasing companies as 49.6% of the world’s active aircraft were operated under an operating lease, increasing by 1.8%, inching ever closer to the 50% mark, according to Cirium Fleets Analyzer Data. Furthermore, Sale and Leaseback (SLB) active was relatively similar to levels seen in 2019, despite the fact that during 2020, manufacturers delivered fewer new aircraft and the absolute aircraft fleet has not grown in size.
Still, out of lessors with more than 50 aircraft in its fleet, neither AerCap nor GECAS had more than 65% of its aircraft active as of February 2021, ch-aviation.com data pointed out. To further complicate the situation, Ascend by Cirium analysis pointed out that the aviation industry will see a significant feet surplus through late-2022 at best, minimizing opportunities for lessors to remarket their aircraft.