The merger of leasing giants Aercap and GECAS could lead to tighter scrutiny of the aircraft leasing industry by regulators, the chief executive of rival lessor BOC Aviation has suggested.
“Remember GPA ? The Irish love talking about how great GPA was. But let’s not lose sight of the fact that once Aercap merges with GECAS it will be the size of the third largest Irish bank. How does a regulator think about this? What we’re worried about is gradually getting regulators more involved in the leasing business globally going forward,” BOC Aviation's managing director and chief executive officer (CEO), Robert Martin, tells Airfinance Journal.
However, Martin is not worried that the merger will give Aercap-GECAS undue market power. He doubts that even a merged Aercap and GECAS would be able to achieve the low cost of finance that BOC Aviation claims.
“The price we pay for our debt is already one of the lowest in the market. We’re already priced at a discount to where Aercap raised money, so we won’t be at any more disadvantage just because they merged with GECAS, we’ll still be as competitive,” Martin tells Airfinance Journal.
The same concept applies to lease rates: “If their cost of debt is still above ours and they drop their lease rates, then all they’ll do is lose money,” says Martin.
The Singapore-based, Hong Kong-listed lessor believes that the largest impact of the merger will be on used aircraft trading.
“Where we think they will have the biggest impact is on the aircraft sales market side because clearly Gus is following what he did after acquiring ILFC, where he combined the two portfolios. To maintain the investment grade ratings, however, he’ll need to quickly sell certain parts of the portfolios.
The number of used aircraft portfolios hitting the market will go up in the short term,” Martin tells AFJ. “They will become the biggest lessor by far for aircraft older than 12 years,” he adds.
BOC Aviation, however, has not got its sights on any of them. “We are not looking at picking up any portfolios at the moment. I don’t rule it out, but nothing that we’re grinding our way through at the moment,” the lessor CEO says.
Quizzed on manufacturer order concessions as a direct result of the merger, Martin notes this must not necessarily lead to significant discounts.
“On the aircraft pricing side, this is really a matter of how manufacturers view you. Look at how we’ve supported airlines and the manufacturers during the crisis with all the PLBs we’ve done. GECAS and Aercap didn’t do that, they’re pure leasing companies. In fact, GECAS wants its divorce from the GE Group to be a pure leasing company,” Martin notes.
The European Commission’s (EC) antitrust authority will decide whether to approve a more than $30 billion proposal by Aercap to acquire GECAS by 26 July, according to an EC filing.
Aercap notified the EC antitrust regulator on 18 June seeking approval to purchase GECAS and acquire joint control over Shannon Engine Support, a subsidiary of CFM International and 50/50 joint venture between GE and Safran Aircraft Engines.
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