AerCap, the world's largest aircraft leasing company, has finally finalised an acquisition of General Electric Co worth more than $30 billion.A transaction in the leasing business. The world's two largest aircraft leasing companies will merge and a new industry giant will be born.
The two companies finalised the deal on Wednesday after days of speculation about buying General Electric Co's leasing subsidiary GECAS. Together, the two companies control more than 2000 aircraft, which inevitably dwarfs other competitors.
This merger will easily become Airbus and Boeing CoThe largest buyer of jetliners and will reshape the global aviation finance industry. In recent years, the industry has attracted a lot of money as investors seek higher returns.
Analysts said the deal came as the independence of several leasing companies was questioned by the novel coronavirus crisis, which could trigger further consolidation.
This is the latest move by General Electric Co CEO Karp to reduce debt and focus on core industrial businesses such as electricity, renewable energy, aviation and healthcare.
Karp took over the troubled company in 2018. A few months ago, the 129-year-old company pulled out of the Wall Street blue-chip index after years of falling profits.
"this deal marks the real transformation of General Electric Co into a more focused, simpler and more powerful industrial enterprise," Karp said. "
Angus Kelly, chief executive of AerCap, said the Dublin-based company bought AerCap at a "tempting" discount below its book value, the second decisive deal in nearly a decade. Earlier, AerCap acquired ILFC of the United States in 2014.
In both deals, AerCap targeted strong commercial competitors whose owners are suffering as a result of the broader financial crisis. In both cases, owners accepted a larger stake in AerCap in exchange for control, betting on an industry recovery.
"it's not about scale, and it's not about getting bigger for the sake of scale," Kelly told analysts. "
The GECAS deal includes about $24 billion in cash and $1 billion in AerCap notes or cash. Including 111 million new shares, General Electric Co will hold a 46 per cent stake in AerCap holding company.
"as the airline industry recovers, we have the ability to cash out our holdings," Mr Karp told analysts. "
General Electric Co said he planned to use the cash available on the exchange to reduce debt by about $30 billion, but announced that it would write down $3 billion as a result of the deal. The deal, which includes the transfer of about 300 helicopters, is expected to be completed in the fourth quarter of 2021.
Citigroup and Goldman Sachs Group$24 billion in committed financing has been provided for the AerCap deal.
AerCap said the deal would increase its debt-to-equity ratio to 3.0, but that the adjusted ratio would return "quickly" to the target level of 2.7.
Analysts sayThe combined entity controls about three times as many aircraft as Dublin-based Avolon, its nearest competitor, and could force AerCap to unload aircraft to meet antitrust requirements.
The new group's fleet will be made up mainly of Airbus, but Kelly expressed support for the beleaguered Boeing 737 MAX. The Boeing 737 MAX recently resumed service after being safely grounded for nearly two years.
"I won't bet on Boeing Co," he said. "
Analysts said the deal would give the combined group more bargaining power when buying aircraft.
Boeing Co declined to comment on the merger. Airbus said it would maintain good relations with AerCap and GECAS.