Chinese Tycoon Expands Aviation Empire With $10 Billion PurchaseBy , , and
HNA Group’s Avolon to buy CIT’s aircraft-leasing business
Aim is to be No. 1 plane-leasing company, Avolon CEO says
China’s HNA Group, controlled by billionaire Chen Feng, agreed to buy the aircraft-leasing business of CIT Group Inc. for $10 billion in a deal that would create the world’s third-largest rental fleet.
HNA’s Avolon Holdings Ltd. will expand its lineup to 910 aircraft valued at more than $43 billion, including planes on order, the company said Thursday in a statement. The acquisition is scheduled to close in the first quarter after regulatory and shareholder approval.
“Our strategic objective is to build the No. 1 aircraft-leasing company in the world in terms of size, shape and scale,” Domhnal Slattery, chief executive officer of Avolon, said in a telephone interview. “This transaction enables that journey.”
The purchase roughly doubles Avolon’s fleet and vaults it into the ranks of the top aircraft lessors. Founded in 2010, Avolon is betting on rising demand for global air travel and airlines’ desire to replace aging jets, especially in the Asia-Pacific region, where China is poised to become the biggest aviation market within two decades. The Dublin- and Hong Kong-based company aims to overtake market leaders GE Capital Aviation Services, a unit of General Electric Co. known as GECAS, and AerCap Holdings NV.
“The transaction fits right in the middle of our wheelhouse,” Slattery said.
The deal doubles HNA’s more than $10 billion of acquisitions already announced this year, according to data compiled by Bloomberg, and expands its travel and leisure business spanning airports, airlines and hotels.
For billionaire Chen, 63, who two decades ago walked the aisle of his startup Hainan Airlines Co.’s lone airplane serving refreshments, the latest acquisition is part of his ambition to make HNA one of the world’s top 100 companies by the end of this decade and among the top 50 by 2030.
“This is an essential part of a strategy to make China a hub, not just for airlines, but also for aircraft manufacturing, for leasing, for components, for engines,” said Will Horton, a Hong Kong-based analyst at CAPA Centre for Aviation. “Demand for leasing should remain high. It’s certainly more profitable than running an airline.”
CIT rose as much as 10 percent to $40 in extended trading in New York. The stock had dropped 8.3 percent this year through the close of regular trading Thursday.
CIT, a New York-based bank, intends to return as much as $3.3 billion of common equity to shareholders, it said in a separate statement Thursday. CIT is seeking to reduce annual operating expenses by $125 million over the next two years as it targets a return on tangible common equity of 10 percent, the firm said in March. The bank has been exploring a sale of its aircraft business, which comprised about 23 percent of assets before the deal, since last year.
“This transaction will strengthen our balance sheet, simplify our business and enable us to return significant capital to our shareholders,” CIT Chief Executive Officer Ellen Alemany said in the statement. “The sale of CIT Commercial Air represents an important milestone for CIT.”
The deal is “definitely accretive” to CIT’s value to shareholders, Chief Financial Officer Carol Hayles said on a conference call. Whether the deal adds to earnings per share depends on how many shares the company buys back, she said.
JPMorgan Chase & Co. served as exclusive financial adviser to CIT, and Bank of America Corp. provided capital markets structuring advice. Wachtell, Lipton, Rosen & Katz served as legal counsel to CIT. Sullivan & Cromwell provided bank regulatory advice on the Amended Capital Plan.
Avolon’s financial advisers for the transaction were UBS Group AG and Morgan Stanley. Weil, Gotshal & Manges and Freshfields Bruckhaus Deringer acted as Avolon’s legal advisers. KPMG and Ernst & Young also advised on the transaction.
Airlines in Asia will fly more than 16,000 planes within 20 years, almost tripling the current number, according to estimates by Boeing Co. In the past three decades, the number of aircraft owned by operating lessors jumped 11 percent a year, according to Singapore-based Phillip Capital Pte.
In August, HNA completed the purchase of a stake in Azul Linhas Aereas Brasileiras SA, Brazil’s third-largest airline, after agreeing in May to buy part of Virgin Australia Holdings Ltd. The group expects to complete its acquisition of Swiss airline caterer Gategroup Holding AG this year after taking over airport luggage-handler Swissport International Ltd. in February.
HNA has also shopped for non-aviation assets. U.S. computer and software distributor Ingram Micro Inc. agreed to be bought by a unit of HNA for $6 billion in February, and the Chinese group is seeking to buy the owner of the Radisson and Park Inn hotel brands.
HNA posted 2015 revenue of almost 190 billion yuan ($28 billion) and had about 200,000 employees worldwide, according to its website. Aviation is a key business for HNA, whose airlines include Hainan Airlines Co., the fourth biggest in China. The group’s airlines flies more than 800 domestic and international routes with a fleet of 1,250 aircraft as of July.
GECAS and AerCap are the aircraft-leasing market leaders, each with more than 1,000 planes in operation, according to Bloomberg Intelligence. Avolon said it had a fleet of 443 planes at the end of the second quarter. BOC Aviation Ltd., the aircraft-leasing unit of Bank of China, had 483 aircraft owned, managed or on order, according to a company statement.
HNA-controlled Bohai Leasing Co. acquired Avolon in a $7.6 billion deal that closed in January.
— With assistance by Sam Nagarajan, Angus Whitley, and Kyunghee Park