GE on brink of $30bn sale of leasing business


General Electric (GE) and AerCap Holdings are reported to be on the brink of signing a deal for the purchase of GE’s aircraft leasing business which is believed to be worth in the region of $30bn.

This would give AerCap a dominant position in aircraft leasing with a fleet of approximately 3,000 aircraft, accounting for around half of the market.  

The driver for the deal is GE’s desire to rationalise its portfolio of businesses and reduce its debt. However, such an aggressive consolidation represents a significant development in the aircraft and airfreight sector.

One of the assumptions presently underlying the leasing sector’s business model is that airlines are so financially distressed that they will not have the capital to buy aircraft on their own balance sheet, rather they will have to lease them. The implications for airfreight are significant. If it is true that airlines will struggle to purchase new aircraft this could imply that the speed of volume increase in belly-freight will moderate in the future.

A further implication is that with greater concentration in the leasing market, the cost of leasing aircraft will rise. Of course, there are other major influences on this, notably interest rates, however, it is one further addition towards higher costs in the sector.

In such a world, those aircraft operators who can finance their fleets internally, such as the ‘Big Three’ express companies and Amazon may be able to achieve a lower cost-base.  

The impact on airfreight of higher leasing related expenses is not linear, as belly-freight is often an opportunity cost for airlines. However, fewer and more expensive passenger aircraft in the sky would be very likely to affect belly-freight availability, which until recently has been very abundant.

The present distress of the airline sector is extreme. For example, Lufthansa has just announced a €6.7bn loss for 2020 and is, unsurprisingly, looking to rationalise its fleet in parallel to the 20% reduction in its workforce. Such financial trajectories strongly imply that there will be both be a reduction in the size of fleets but also in the number of airlines. Therefore, it is reasonable to suggest that the short-to-medium term destination of the air transport sector is lower levels of competition, in both passenger and freight services, air-service networks and supporting structures such as leasing.

Source: Transport Intelligence, March 9, 2021

Author: Thomas Cullen