AerCap Holdings NV’s $30 billion deal to buy General Electric Co.’s plane-leasing arm is spurring talk of further consolidation in the sector just as air travel is poised to begin a slow recovery from the Covid-19 crisis.
The transaction could be followed by more mergers and acquisitions, according to analysts at JPMorgan Chase & Co. Cowen Inc.’s Helane Becker said its valuation should give investors comfort around book values, while a firm the size of the enlarged AerCap will be able to dictate jet design and purchase terms to manufacturers.
Fly Leasing Ltd., led by former Aer Lingus chairman Colm Barrington, has been exploring a sale, according to people familiar with the matter. Hong Kong’s billionaire Cheng family has also gauged buyer interest in Goshawk Aviation over the past year, the people said, asked not to be identified because deliberations are private.
Another potential target is Avolon Holdings Ltd., whose owner HNA Group Co. is still working to unwind an acquisition spree after being taken over by the Chinese government.
Fly Leasing declined to comment, as did Avolon and HNA.
A representative for Henry Cheng’s NWS Holdings Ltd., which owns 50% of Goshawk, said it isn’t seeking a buyer and declined to comment on past considerations. A spokesperson for the family’s private investment vehicle, which owns the remainder, didn’t respond to requests for comment.
The coronavirus pandemic has pushed airlines around the world to cancel jet orders, push back deliveries and defer rental payments. As middlemen, leasing firms have suffered themselves while also playing a critical financing role in keeping deliveries flowing, often with sale-leaseback deals that hand vital cash to carriers. The sector remains highly fragmented on a global basis, meaning more deals could take place without stirring antitrust concerns.
Sector’s Attraction
Richard Aboulafia, an aerospace consultant at Teal Group, said leasing firms are especially alluring given the relative lack of other tangible investments at a time when cash is relatively cheap. Some are also “beat up” from lease deferrals and write-downs, making valuations “pretty attractive,” he said.
The absence of obvious growth sectors elsewhere could draw non-traditional interests into jet leasing, including diversifying financial investors, pension funds and companies from the Asia-Pacific, said Philip Perrotta, a partner at law firm K&L Gates who oversees aviation finance.
JP Morgan analysts including Jamie Baker said in a note that they expect to see some read-across to other lessors from the AerCap-GE deal, encouraged by growing confidence that the acceleration of vaccination programs is set to trigger a return to flying, even if the timing remains uncertain.