Executives from major aircraft lessors expect relatively limited merger and acquisition activity among leading players over the coming years, but organic growth and large order backlogs will help to further concentrate activity among the industry’s top tier.
Speaking during a panel at the Airline Economics Growth Frontiers conference in Dublin on 29 January, Orix Aviation Group chief executive James Meyler said that he does not expect consolidation among the bigger lessors.
”For sure there is a huge appetite for consolidation. I think all of the top 10 lessors want to grow, buy more assets or another company to allow them to do that.”
But he adds: ”The reality is most of those 10 also don’t want to sell. Which means if there are companies to be sold, I think in this environment they are more likely to come from the [next tier of] lessors rather than the very big ones.”
He notes that sales among the largest lessors have historically been driven by a parent company’s requirements. “It wasn’t the underlying business that was the problem, it was the shareholder making the decision,” Meyler says.
”I think we will see a fair amount of relatively small consolidation – people with 30-100 aircraft. I’d say we’ll see a number of those transactions happen in 2024.”
Speaking later at the same event, Avolon chief executive Andy Cronin similarly notes that previous M&A activity was shareholder-led, a dynamic that would need to be repeated if there are to be further sales.
However, he adds: “It’s hard to see leasing platforms getting into such distress they need to sell quickly.
”From our perspective M&A has a place,” he adds. “But it has to be financially accretive – not just growth for growth’s sake. And it has to deliver some level of strategic benefit.”
Indeed, Cronin points to Avolon’s investment in expanding its portfolio through sale-and-leaseback transactions as an alternative way for lessors to gain scale. “That is actually bigger than any M&A deal that was done over the past 12-18 months, so it is a material amount of capital that we are able do deploy in an organic way with aircraft with… known risk and return profiles.
”I think access to an orderbook is a fundamental part of lessors and how they think about growing over the next few years,” he adds.”
”Manufacturers are largely sold out now to 2030, so the opportunity for other players to enter that growth arena [at scale within that timeframe] is low,” he says, while noting orderbooks are concentrated with around five to six large lessors. “So that’s real consolidation happening and not through M&A,” he says.
”There will be disciplined buyers for any platform that comes up,” he adds. “But really if you look out over the next five to six years the core driver of what shape are these businesses and platforms, is the orderbook.”
SMBC Aviation Capital completed the acquisition of fellow Dublin-based lessor Goshawk in late 2022 and chief executive Peter Barrett told the conference that the deal “ticked a lot of boxes” in terms of the scale it brought. “It is now completed and integrated. It’s gone well. It’s delivering what we said.”
He also sees commercial activity increasingly concentrated among the big players. ”I think leasing is going to continue to be the predominant… way for airlines to finance aircraft, so this industry is going to continue to get bigger.”
The increased concentration of activity will mean in five to 10 years time that there will be ”a relatively small number of very large players”, he says, trailed by ”a large number of smaller players who will be more boutique, niche, [and] more trading companies that will buy and sell aircraft in the market.
”Is there role for lots of different lessors? Of course there is,” he adds. ”But I do think there is going to be a smaller number of big lessors?
”It’s difficult to start an aircraft leasing company and get it going, it’s even more difficult to get it to scale, and that barrier is getting higher and higher.”