In aviation finance circles, Avolon is widely considered the front-runner to buy lessor CIT Aerospace. Sources expect a deal to close within two weeks.
Having itself recently been purchased by Chinese powerhouse HNA Group, Avolon certainly has the firepower to acquire CIT.
But, leaving aside the simplistic analysis of who has the biggest wad of notes, there are several reasons that Avolon needs CIT as much as CIT needs a buyer.
First, there's size.
Avolon's fleet value at 30 June was around $25 billion, the Domhnal Slattery-led lessor has said. Tack on CIT's fleet – the value of which was estimated at some $9.5 billion in FlightGlobal's latest lessor ranking – and the combined entity finds itself in the same league as GECAS and AerCap.
Earlier this year, Slattery said he would like the company to double in size, from $20 billion to $40 billion. Acquiring CIT is a sensible way of going quite some way toward achieving this goal.
However, to think this deal would only go ahead to achieve size for size's sake is to ignore several crucial macro market factors that may make the leasing business a much tougher one in the near future.
One is supply. Both Boeing and Airbus are ramping up production rates of their aircraft, including new, more fuel-efficient narrowbody offerings. Lessors have placed massive orders for these jets.
Then there is demand. Historically low fuel prices have meant that airlines are quite content to continue using, or lease in, older Boeing 737 and Airbus A320 variants.
Another effect of low oil prices is that lessors have not been able to lock in the higher lease rates they expected on the new narrowbody types as the efficiency premium they had assumed has not materialised.
"Neos were invented when oil prices were well over $100 a barrel and people thought they would stay over that figure," Avitas senior vice-president Adam Pilarkski has observed.
Another financial source says that for mid-tier lessors, this situation means they will struggle to make the hoped-for returns on any Neo or Max orders.
Avolon would in buying CIT gain the economies of scale enjoyed by the likes of GECAS or AerCap, bringing resilience to market and lease-rate fluctuations, adds the source.
Another advantage Avolon would derive from being larger is that the rise of the airline lessor would not have the same impact it might for middle-tier and smaller players, the source notes.
This is because the likes of Lion Air and AirAsia can order huge numbers of aircraft from the manufacturers with heavier discounts than most lessors would ever be able to achieve.
These assets can then be moved into a leasing subsidiary, which can offer them at far lower rates than a traditional lessor can, thanks to the discounts achieved at initial purchase.
Again, reaching a size comparable to AerCap's or GECAS's could ensure Avolon is safeguarded from these types of events.
Finally, there is a state of being simply too big to fail.
The global economy looks like it is heading for a slowdown, with the IMF expecting overall growth of only about 3% this year. China is no longer expanding at the rate it was, while Europe and South America are both beset by problems. The US is a mature economy, and growth has lost pace in India and certain ASEAN countries.
Naturally, economic travails affect people's willingness and ability to travel. There might not be such a need for airlines to ramp up their fleets, and so completion among lessors for contracts could intensify .
But the manufacturers are already producing more jets, while lessors across the spectrum have placed massive orders in the recent past. Will the supply match the demand just enough to keep everyone afloat? Or will a number of formerly strong mid-tier leasing firms have to exit when the competition heats up?
That remains to be seen. But what is fairly evident is that the larger lessors will have an easier time navigating such conditions.
Avolon may buy CIT for 1.1 times or 1.2 times book value, sources says, despite the trend of other lessors trading below book, but debt is relatively inexpensive right now and Avolon's owners are not poor.
Buying CIT makes complete sense for Avolon given likely market conditions in the near future. Now, the deal just has to be finalised.