HNA Group subsidiary Avolon has reached an agreement with CIT Group to buy its aircraft financing and leasing business for $10 billion in an all-cash transaction.
The deal, if approved, would more than double the size of Avolon’s fleet to 623 aircraft with a current market value of $20.7 billion, the Flight Fleets Analyzer shows. Avolon has 284 aircraft today.
The combined lessors also have firm orders for another 265 aircraft, bringing its total committed fleet to 888, according to Fleets Analyzer.
“We are delighted to announce an agreement to acquire the CIT aircraft leasing platform,” says Domhnal Slattery, chief executive of Avolon, in a statement. “While this transaction is strategically compelling and will double the scale of Avolon, it is not the summit of our ambition… We look forward to continuing to drive the disciplined growth of the business in the years ahead.”
Avolon puts the combined owned, managed and committed fleet of the resulting company at 910 aircraft.
It has deposited a $500 million commitment fee in an escrow account pending close. Proceeds will be applied to the transaction.
The deal values CIT’s aircraft finance and leasing business at a 6.7% premium over its adjusted net assets of $9.4 billion at the end of June, the firm says. CIT Aerospace had $11.1 billion in assets and $1.7 billion in liabilities at the time.
CIT announced a “dual-track” process to either spin or sell its aircraft business in October 2015, as part of a plan to turn the company into a commercial bank.
"The sale of CIT Commercial Air represents an important milestone for CIT and follows an extensive dual-track process that was designed to maximise shareholder value,” says Ellen Alemany, chief executive of CIT Group, in a statement.
CIT has received a “non-objection” from the Federal Reserve Bank of New York to return $2.98 billion of the purchase price to shareholders as common equity, another $325 million in common equity contingent on the issuance of additional preferred stock and $64 million as dividends during the year after the sale closes.
Close is expected in the first quarter of 2017, pending shareholder and regulatory approval.
UBS and Morgan Stanley advised Avolon and JP Morgan advised CIT on the transaction. Bank of America Merrill Lynch advised CIT on the capital markets structuring.
Weil, Gotshal & Manges and Freshfields are Avolon’s legal advisers and Wachtell, Lipton, Rosen & Katz is CIT’s legal adviser.