Irish aircraft lessor Aercap is poised to create the biggest business in its industry by the end of this year after agreeing to buy rival GE Capital Aviation Services (GECAS) for €25 billion.
Dublin-based Aercap confirmed on Wednesday it has entered a "definitive" agreement with GECAS's owner US multinational General Electric (GE) to buy the aircraft leasing business, whose main office is in Shannon, Co Clare, for $30 billion (€25 billion) in cash and shares.
The transaction will give Aercap, which buys aircraft to lease to airlines around the world, more than 2,000 planes, 300 helicopters and 900 engines, about 3,200 individual assets in all.
Aercap's takeover will see GECAS circle back into Irish ownership. The business grew from GE's purchase of Irish aircraft leasing giant Guinness Peat Aviation (GPA), brainchild of Ryanair founder Tony Ryan, following its failed stock market flotation in the mid-1990s.
Aengus Kelly, Aercap chief executive, said the Dublin-headquartered group was "excited" at the opportunity to bring together two leaders in aircraft leasing.
“As the recovery in air travel gathers pace, this transaction represents a unique opportunity that we believe will create long-term value for our investors,” added Mr Kelly.
Peter Juhas, Aercap's chief financial officer, told analysts the group could get the approval needed for the deal to go through from its shareholders and competition regulators in about 20 countries by the end of the year.
He noted that the group would seek shareholders’ backing at its annual general meeting in May. Meanwhile, it hoped regulators would clear the transaction in the final three months of this year.
“We are confident that we will get those approvals,” said Mr Juhas when asked about the likelihood that regulators would give it the green light.
He added that Aercap had discussed this issue with its lawyers and would not have agreed to buy GECAS had it not believed regulators would allow the transaction.
Aercap will pay GE $24 billion cash, $1 billion in loan notes and/or cash and 111.5 million new shares, worth about $6 billion on March 9th.
US banks Citi and Goldman Sachs will give Aercap a $24 billion unsecured loan to finance its purchase of GECAS.
GE will own 46 per cent of Aercap as a result of the transaction. It must hold those shares for a minimum of nine months after completion.
At that point, it has the option of selling the first of three tranches of the stock, and can sell the second and third after 12 and 15 months respectively.
“This is the right business at the right time, at the right price,” Mr Kelly told brokers.
Aercap’s enlarged business will generate revenues of $7 billion a year and about $5 billion in operating cash flow.
Mr Kelly stressed that it would not alter the Irish company’s investment grade credit ratings and suggested that it could improve them further.
Aercap’s fleet will include Airbus A350s, Boeing 737 Maxs and 787s. Some 65 per cent of them will be narrow-body craft most in demand with airlines as they are used for short-haul journeys.
The engines that Aercap is buying will include many made jointly by GE and CFM, which Mr Kelly said “power the most popular aircraft in the world”.
Restructuring both businesses after the merger could take 2½ to three years, Aercap estimates.
GE chairman and chief executive, H Lawrence Culp jnr, described Aercap as the right partner for GECAS.
Mr Culp said on Wednesday that the transaction would leave GE with less debt and risk. “GE will be focusing wholly on our industrial core,” he said at an analysts’ conference.
Carolina Dybeck Happe, GE's chief financial officer, pointed out that after selling the leasing business, GE Capital will have reduced assets from $86 billion in 2018 to $21 billion. The US giant has been working to focus its main industrial businesses for several years.