AerCap Holdings NV (AER), the largest independent jet-leasing company, said a recent deal with American Airlines will help it gain more business as other U.S. carriers place large orders to refresh their fleets.
Other airlines have contacted AerCap since American, a unit of AMR Corp. (AMR), agreed July 15 to sell it 35 new Boeing Co. (BA) 737-800s and lease them back, said Chief Executive Officer Aengus Kelly. The transaction gives AerCap the benefit of discounts American negotiated with Boeing while providing the carrier new planes that are kept off its balance sheet.
“To show we can do a deal like that elevates us to another level,” Kelly, who became CEO in May, said in an interview. The American sale-leaseback arrangement is the biggest AerCap has ever done in terms of units, he said. “Strategically, that’s where I want the company to go, to deal in larger-scale transactions like that.”
AerCap will need to absorb some of the initial 35 planes for American before deciding whether to pursue a similar deal within the 460 aircraft the carrier ordered July 20, Kelly said. Boeing and Airbus SAS, the planemakers that roughly split that order, agreed to lease half of the planes to American. Boeing has said it’s seeking leasing companies to fulfill that pledge.
Delta Air Lines Inc. (DAL) and United Continental Holdings Inc. (UAL) are among carriers that will need to replace large chunks of their aging fleets in coming years. Delta, which plans to make a decision by year-end on as many as 200 single-aisle jets, will likely extract terms from the manufacturers that are similar to American’s, Kelly said in an Aug. 5 interview.
Lessors May Gain
Such large orders -- American’s was valued at $38.5 billion at list prices -- are prime for sale-leasebacks because airlines can’t carry the whole purchase on their balance sheets, Kelly said.
Leasing companies, including AerCap’s larger competitors such as General Electric Co. (GE)’s aviation-services unit, stand to gain with sale-leasebacks, Kelly said. The lessors won’t want to place their own orders now because Airbus and Boeing are both sold out for the next few years and have record backlogs, meaning they’re not likely to offer the steep discounts lessors rely on for speculative purchases, he said.
Amsterdam-based AerCap, which has a fleet of 335 planes, last week posted a 22 percent increase in adjusted quarterly profit compared with a year earlier. Net income through June, excluding some items such as share-based compensation and a one- time charge related to last year’s purchase of Irish competitor Genesis Lease Ltd., was $72.8 million, or 49 cents a share.
AerCap sold its AeroTurbine unit, which buys old aircraft and disassembles them for parts, to larger competitor International Lease Finance Corp. on Aug. 3 for $228 million. Kelly said the company had used AeroTurbine to deal with a “sizeable amount of aging planes” in its fleet and no longer needs it now that the average age of AerCap’s jets has dropped to about five years.
AerCap fell 23 cents, or 2.1 percent, to $10.77 on Aug. 5, erasing an earlier jump of 6.1 percent in New York Stock Exchange trading, as most markets declined that day. The stock has dropped 24 percent so far this year.
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