Monday 15 July 2019

Gecas may be too big for any buyer - AerCap's Kelly

Acquiring world's No 2 aircraft lessor only a 'pipe dream' for traditional private equity, says boss of its main rival

The Gecas business includes its jet-leasing arm, and engine leasing (stock photo)
The Gecas business includes its jet-leasing arm, and engine leasing (stock photo)
John Mulligan

John Mulligan

Gecas, one of the world's top aircraft lessors, may have to be broken up to make it digestible for a potential buyer of its jet leasing unit, the CEO of rival AerCap has predicted.

Any sale of GE's Shannon-headquartered aviation leasing arm is unlikely to be to a traditional private equity company and its units, he added.

Aengus Kelly made the comment amid reports earlier this month that private-equity giant Apollo is considering a bid for the Gecas business, which is part of GE.

Gecas and AerCap, the world's biggest lessors, both emerged from the former Guinness Peat Aviation (GPA) empire of Tony Ryan. Gecas, which has its operational headquarters in Shannon, has a net book value of about $40bn. GE has been eyeing a possible sale of the unit in order to deleverage its own wider group.

The Gecas business includes its jet-leasing arm, and engine leasing. It also lends money to customers, and finances helicopters, engines and parts. Its portfolio includes almost 2,000 jets and helicopters. "If you look at the Gecas business ... [it] has four different business units to it. The total is about $40bn. The aircraft business is about $25bn or $26bn. It's a big, big number," Mr Kelly told the 'Airfinance Journal' conference in Dublin.

Dublin-based AerCap acquired lessor ILFC in 2013, which had assets worth about $35bn at the time. AerCap paid $7.6bn in cash and shares to AIG for the company. "When we bought ILFC, that was a $35bn buy - so materially bigger than Gecas," said Mr Kelly. "But we could never have done ILFC if the debt structure wasn't there. So the odds of getting a transaction away for the whole thing [Gecas] are just, I think, slight to be fair."

He added: "I think they may have to sell parts of it. If they have taken the decision to dispose of it and if they proceed with a disposal, to get the whole thing away without a capital structure travelling with it, is going to be very challenging and it's going to hurt the pricing so badly.

"The risk premium that someone would take on, to take that risk, to finance a $30bn-plus buy - you're really going to want your pound of flesh from the seller to eat that risk."

Mr Kelly said he does not believe a traditional private equity (PE) player will be the ultimate buyer of Gecas.

"I've been owned by private equity twice," said Mr Kelly. "A private equity business needs leverage. You can't run the Gecas business at a single B credit rating, an PE wants to lever things up the wazoo. It's a pipe dream for a traditional PE [player] to get it. But they'll make lots of noise, because they never want to be out-indicated, that's their business. There may be other pools of capital that PE may be able to tap, but it won't be traditional PE."

Domhnal Slattery, the CEO of leasing giant Avolon, told the conference that he believes Gecas will be formally put up for sale soon. "My personal feeling is that the decision has already been made at GE to sell Gecas, and the market will be advised of that this, or next quarter," he said. "GE needs to deleverage and it needs to do it pretty quickly."

Gecas declined to comment.

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