December 16, 2013
AerCap’s deal to buy International Lease Finance Corp. (ILFC) was motivated in large part by the chance to acquire an enticing order book at a great price, creating an efficient aircraft management “platform” that dovetails well with its own strategy, AerCap CEO Aengus Kelly says.
The deal, announced today and expected to close by mid-2014, would create the second-largest lessor by aircraft fleet size, including an in-service fleet of more than 1,300 owned and managed aircraft with about 200 operators, of which 80% are currently customers of both companies. GE unit GECAS has about 1,670 aircraft placed with 230 operators.
More significantly, it would give AerCap hundreds of prime delivery slots in the next five years for the most sought-after current and new-generation aircraft, including the Airbus A320neo and A350 as well as the Boeing 737-800, and 787.
“We saw an opportunity in the market that will probably never be there again, right at the time where the industry cycle is turning,” Kelly said of ILFC’s order book in a call with analysts shortly after the deal was announced. “If you go to the [manufacturers] today, it’ll be on average a decade later before you get this stuff. It’s the jewel in the crown of the whole transaction.”
Kelly noted that the deal was finalized as the International Air Transport Association (IATA) was upping its 2014 global airline net profit projection to $19.7 billion—a positive sign for those peddling efficient but pricey new aircraft.
Grabbing large chunks of new delivery slots runs counter to AerCap’s core growth strategy. While the company has placed large orders in the past, it more often lands sale-leaseback opportunities, including a 25-plane deal with Latam Airlines Group struck earlier this year.
ILFC, by contrast, routinely places large orders to secure prime delivery slots and favorable pricing. As of Sept. 30, the company had 338 aircraft on order, including 150 A320neos, 71 787s, and 20 A350s. Combined, the new entity will have 385 aircraft on order, with 286 of them slated for delivery by 2019.
AerCap’s owned-aircraft portfolio underscores its laser-like focus on maintaining a fleet of young, in-demand aircraft. All but eight of its 231 owned airframes are A320-family aircraft, A330s, or 737NGs. The entire fleet’s average age is 5.4 years.
ILFC’s 931 owned-aircraft fleet includes more than 600 of these types plus 71 Boeing 777s, meaning 85% of the combined fleet is made up of these four highly desirable models.