Avolon's purchase of CIT Aerospace is not a done deal yet. Despite announcing the agreement to purchase CIT Aerospace, Avolon still has some way to go until the all-cash deal closes next year.
Chinese-owned Avolon has agreed to a substantial $600 million termination fee, surely a sign of good faith that the buyer intends to close in early 2017 as specified.
This pledge gives the announcement clout. After all, it was only three years ago, that a Chinese consortium pulled out of the deal to purchase ILFC.
And then somewhat unexpectedly, AerCap swept in with a bid to purchase ILFC – a company two-thirds larger than that of the buyer – creating the second largest lessor in the world and nearing GECAS’s portfolio size.
Which begs the question: What is the perfect size for a leasing company today?
The two largest lessors – AerCap and GECAS – have fleets both in excess of 1,000 aircraft. Since AerCap/ILFC merged – creating the second largest lessor with over 1,000 aircraft – GECAS has meticulously pared down its fleet size resulting in the two companies having similarly matched portfolio sizes.
In only two years, Avolon will jump from 140 aircraft at the end of 2014 to more than 600 aircraft when the deal to buy CIT closes, according to Flight Fleets Analyzer. With combined forward orders in excess of 300, the company is aiming to continue to swell to over 900 aircraft by the end of 2023, the date of delivery for the last Airbus A321neo Avolon currently has on order.
Air Lease, like Avolon, has built-in growth with its 350-plus aircraft orderbook, which will bring the company's fleet to over 600 aircraft by 2024. Obviously, it's important to keep in mind that lessors are aircraft traders, which means growth is not necessarily equal to current fleet plus orders.
As larger companies, Air Lease, GECAS and AerCap benefit from economies of scale and regional expertise. Also, as investment grade companies, they benefit from cheaper funding costs.
Ultimately, these mega-lessors can leverage the platform more effectively and efficiently.
“How can you keep up with the Joneses?” as one Wall Streeter put it, suggesting that there is going to be more consolidation among mid-sized lessors.
So, how will the mid-sized guys compete? Particularly when financing terms are so competitive and airlines have the benefit of a diverse smorgasbord of funding options.
“There’s going to be much more consolidation,” says one New York aircraft finance lawyer.
Source: Cirium Dashboard
