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No one looks forward to a resumption of air travel more than aircraft lessors. One in particular, Dublin-based AerCap Holdings, plans to bet its balance sheet on a post-pandemic take-off by buying General Electric Capital Aircraft Services, valued at about $30bn. Adding the GECAS fleet — more than 1,600 planes in-service or on order — would make AerCap the undisputed world leader.
Shareholders have high hopes. AerCap’s share price has more than doubled since late September. That trajectory reflects expectations of a global revival in airline travel. A glance at history reveals that prior to last year global airline traffic had only fallen in three of the previous 50 years, according to Ross Harvey at Davy. But any pick-up will need time. Airline bookings by mid-February remained down some 70 per cent year on year, according to data from industry body Iata.
AerCap takes a more optimistic view and has form for big acquisitions. Back in 2014, it paid $7.6bn to buy International Lease Corporation as part of a post financial crisis restructuring of insurance group AIG.
GE has wanted to exit aircraft leasing, part of its diminished GE Capital unit, for some time. A combination with AerCap would create a group that owns around 2,000 planes out of more than 12,000 leased worldwide. AerCap should be able to better manage this larger portfolio by cutting costs. GECAS lost $786m in 2020, more than double AerCap’s loss. No purchase price has been reported. But one would expect AerCap to use shares given its enterprise value to forward ebitda ratio of 10 times is near 10-year highs.
AerCap argues that airlines will owe too much to debtors to put up new capital for aircraft when passengers do return. They will therefore need to lease planes. To prepare, the top seven lessors raised nearly $15bn in capital during January alone, not far from what was raised in the second half of last year according to Dealogic. But this demand could be met by the existing supply of 542 planes for sale or lease last year, more than double the previous year, using Airfinance Journal data.
Those interested in a leveraged bet may find AerCap’s proposition appealing. But airlines like Ryanair offer a more straightforward, less debt-heavy way to invest in the return of air travel.
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