EU regulators have given the go-ahead for Irish aircraft lessor AerCap’s takeover of GE Capital Aviation Services (GECAS), in a $30 billion deal which will create the global leader in the market.
The acquisition was first mooted in March this year, but was awaiting approval from the European Commission’s competition watchdog.
Under the terms of the deal, AerCap will acquire sole control of GECAS, and joint control over Shannon Engine Support Ltd (SES), a lessor of aircraft engines jointly controlled by GE and Safran Aircraft Engines of France. The transaction entails the acquisition by AerCap of GECAS and GE's interest in SES.
AerCap is paying $24 billion in cash and $1 billion in the form of AerCap notes and cash. Additionally, as part of the transaction, AerCap will issue 115 million new shares to GE, making it the largest shareholder with a 46% stake in the combined leasing company.
GECAS is one of the largest leasing companies in the world, with a portfolio of 1,650 aircraft and helicopters that are operated by more than 200 airlines from 70 countries. Based in Boston, most of its aircraft are Boeing and Airbus, but it also owns regional aircraft.
Together, AerCap and GECAS will have a portfolio of more than 2,000 aircraft, 900 engines and 300 helicopters, with a further 500 aircraft on order of which over 90% are Boeing 737 MAX and Airbus A320neo.
GE will transfer $34 billion of GECAS’ net assets, including its engine leasing and Milestone helicopter leasing businesses, to AerCap. Current GECAS purchase obligations will transfer to AerCap, and GECAS’ more than 400 employees will transfer to AerCap upon completion of the transaction. GE will also nominate two directors to the AerCap board.
The European Commission’s regulatory investigation focused on the markets for aircraft and engine leasing. Its published findings showed that, following the transaction, the companies' combined market shares will remain modest, and that a sufficient number of competitors will stay on the markets. It therefore concluded that the transaction would raise no competition concerns given its limited impact on the markets concerned
The official statement also noted that: “In addition, given that GE is an aircraft engines manufacturer, the Commission examined the vertical aspects arising from the transaction, and concluded that it is unlikely that GE would use its minority shareholding in AerCap to affect competition for aircraft engines, aircraft leasing or engine leasing.”
The deal is currently subject to approval by around 20 other competition authorities in different countries, but GE has said it expects the transaction to conclude by the end of this year.
At the time the deal was first announced, GE Chairman and CEO Lawrence Culp said it “marks GE’s transformation to a more focused, simpler, and stronger industrial company,” with a focus on what he called its “industrial core” of power, renewable energy, aviation, and healthcare.
Culp said the merger created “an industry-leading aviation lessor with expertise, scale and reach to better serve customers around the world, while GE gains both cash and a meaningful stake in the stronger combined company, with flexibility to monetize as the aviation industry recovers.”
Culp concluded: “This action will enable us to significantly de-risk GE and continue on our path to being a well-capitalized company. Building on our multi-year efforts to solidify our financial position, we expect to use the proceeds to further reduce debt for a total reduction of more than $70 billion since the end of 2018.”
AerCap CEO Aengus Kelly (pictured) said: “AerCap and GECAS both have industry-leading teams, attractive portfolios, diversified customer bases, and order books of the most in-demand new technology assets. This combination will enhance our ability to provide innovative and attractive solutions for our customers and will strengthen our cash flows, earnings, and profitability.”
The aviation industry has been one of the hardest hit during the Covid pandemic, and consolidation within the sector has been widely anticipated.