Fitch: AerCap-ILFC Deal Signals Strong Aircraft Leasing Outlook
CHICAGO -- February 5, 2014
The expected closing of AerCap Holdings NV's (AerCap) acquisition of
International Lease Finance Corp. (ILFC) in the second quarter will mark an
important and positive turning point for the aircraft leasing industry,
according to Fitch Ratings. On completion of the acquisition, a long period of
lessor ownership uncertainty will come to an end, and strong public market
acceptance of the deal is a credit positive for the entire industry.
The sale of ILFC by AIG represents the last transfer of a large fleet of
leased aircraft (more than 900), following RBS's sale of its leased aircraft
fleet in 2012 and CIT's re-emergence from bankruptcy. Once the AerCap deal
closes, we believe material consolidation in the industry will be complete,
with two large players (AerCap and GECAS) controlling close to half of all
lessor-owned aircraft globally. However, there may still be M&A opportunities
for the smaller players.
Smaller lessors may feel increased pressure to sell or combine with another
player to achieve the critical mass necessary to compete effectively in a more
consolidated industry. We believe scale plays an important role in driving
lessors' financial performance, particularly given the need to shift leased
aircraft out of underperforming regional markets. Returns to scale tend to
diminish, however, with reduced benefits appearing once lessor fleets reach
Following AIG's exit from the business, the strategic uncertainty surrounding
ILFC's ultimate buyer will be resolved after more than five years. We think
this is an important step for the industry, ending ownership uncertainty and
transferring assets to a pure-play lessor. Additionally, the mark-to-market of
ILFC's fleet could lead to improved support for aircraft valuations since
risks of any further aircraft impairments will be reduced in the transaction.
We expect AerCap to continue pursuing an active aircraft trading strategy,
which will support activity in the secondary market.
Over time, the increase in AerCap's market capitalization should lead to
improved access to equity markets for other aircraft lessors. This could lead
more lessors to contemplate public equity offerings. Air Lease Corp. has been
the only aircraft lessor to IPO since 2007, but we expect more activity as
private equity sponsors continue to look for exit opportunities. Increased
liquidity and trading volume, supported by strong equity market performance
over the last 18 months, should lead to a better funding environment with
strong public participation, a positive for credit.
AerCap's Issuer Default Rating (IDR) is currently on Rating Watch Negative,
while ILFC's IDR is on Rating Watch Positive. Upon consummation of the
acquisition, Fitch expects to equalize the IDRs of the two companies at 'BB+'.
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.
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Ilya Ivashkov, CFA, +1 212-908-0769
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