Fitch: ILFC Sale Unlikely to Shift Asian Aircraft Leasing Market
CHICAGO -- December 19, 2012
There are many unique attributes to American International Group's (AIG)
potential sale of its majority stake in leading aircraft lessor International
Lease Finance Corp. (ILFC, 'BB/Stable') to a consortium of Chinese investors.
While the deal underlines Asia's increasing importance in the global aviation
market, Fitch does not believe it will significantly alter the industry
landscape in the region.
The most recent acquisitions in this sector have involved large Asian banks
and smaller private aircraft lessors with newer fleets of 100-250 jets,
primarily narrowbodies. These transactions have typically been completed at
premiums to book value. By contrast, ILFC has the second-largest fleet in the
world with a sizeable component of widebody and older-vintage aircraft. AIG is
selling ILFC at a 33% discount to its book equity, despite the sizeable
impairment charges taken over the last two years.
In our view, these factors make the potential ILFC sale unique and less
representative of the general trends in the market. Nonetheless, the Chinese
investor community and regulators may become more receptive to additional
investment in the aircraft leasing sector if the ILFC investment proves to be
Japanese banks have been the most active acquirers so far this year. Sumitomo
Mitsui Financial Group acquired RBS Aviation for $1.2 billion in January 2012,
and Mitsubishi UFJ purchased Jackson Square Aviation in October for $1.3
billion. Both of these units will likely become subsidiaries and have some
level of integration and synergies with the parent. BOC Aviation ('A-/Stable')
went through a similar process in 2006.
Acquisitions of smaller lessors by larger banks create certain benefits in
terms of lower funding costs, consistent single-shareholder strategy, and
cross-selling opportunities with the parent. Conversely, lessors that are
subsidiaries of larger entities tend to operate with higher balance sheet
leverage and may not have the same level of funding diversity as their peers.
The combination of airlines' increasing reliance on operating leases globally,
along with the expected growth in air travel, make aircraft lessors an
attractive acquisition target for financial institutions. Fitch expects to see
further consolidation activity in the sector, especially among those lessors
that are owned by private-equity sponsors.
Particularly rapid growth in demand for leased aircraft among Asian airlines
points to further expansion of Asian investor interest in leasing. According
to Boeing's latest Current Market Outlook report, the Asia Pacific region is
expected to represent 35% of all commercial aircraft deliveries through 2031.
We expect changing ownership structures to drive more investment, both through
acquisitions and organic growth, as Asian carriers look for new sources of
financing to support rapid fleet growth in coming years.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at
www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Ilya Ivashkov, CFA, +1 212 908-0769
One State Street Plaza
New York, NY 10004
Bill Warlick, +1 312 368-3141
70 W. Madison
Chicago, IL 60602
Brian Bertsch, New York, +1 212-908-0549
Press spacebar to pause and continue. Press esc to stop.