The world's two largest aircraft leasing companies are combining to create a new financing giant after Ireland's AerCap finalised a deal worth more than $30 billion to buy the leasing unit of General Electric.
The two companies announced a deal today after days of speculation surrounding the takeover of GE's leasing arm GECAS to create a portfolio of more than 2,000 jets, dwarfing industry rivals.
The tie-up creates easily the largest buyer of jetliners built by planemakers Airbus and Boeing.
It will reshape a global air finance industry that has attracted a flood of capital in recent years as investors elsewhere look for higher returns.
But it comes at a time when the independence of several leasing firms has been brought into question by the coronavirus crisis and could trigger more consolidation, analysts say.
The deal to buy GECAS, or GE Capital Aviation Services, includes about $24 billion in cash and $1 billion paid in AerCap notes and/or cash upon closing.
GE will hold a stake of about 46% in the combined company.
It marks the latest move by GE chief executive Larry Culp to reduce debt and focus the conglomerate on its industrial core - power, renewable energy, aviation, and healthcare.
Culp took over the reins at the struggling conglomerate in 2018, months after the 129-year-old company dropped out of Wall Street's blue-chip index following years of dwindling profits.
GE said it plans to reduce debt by about $30 billion after closing using transaction proceeds and existing cash sources.
The deal, which includes the transfer of about 300 helicopters, is expected to close in the fourth quarter of 2021.
Citi and Goldman Sachs have provided AerCap with $24 billion of committed financing for the transaction.
McCann FitzGerald advised AerCap on today's deal.
AerCap said the deal would swell its debt to 3.0 times equity but this adjusted ratio would return "rapidly" to a targeted level of 2.7.
Analysts have said the scale of the combined entity, controlling about three times the number of aircraft as its nearest competitor, Dublin-based Avolon, could force AerCap to offload aircraft to meet competition requirements.
Meanwhile, AerCap will remain a very big believer in Boeing's 737 MAX, its chief executive Aengus Kelly told investors today.
Asked on an investor call about the AerCap-GECAS tie-up whether Airbus was "where the market is going" for narrow body, and in particular larger narrow-body, planes, Aengus Kelly said he did not agree.
"We are very excited about the return to service" of the MAX, Kelly said, adding that Aercap were "very big believers in the airplane."
"I wouldn't bet against Boeing," he added.