UPDATE: AerCap Plans Genesis Merger Amid Sector Troubles
19 September 2009 - 2:03AM
Dow Jones News
AerCap Holdings NV (AER) announced plans Friday to acquire
Genesis Lease Ltd. (GLS) in a $300 million all-stock merger that
would create the world's third-largest aircraft leasing company by
fleet size.
The proposed combination is valued at $1.75 billion including
debt, and comes amid a flurry of deal activity in the
capital-intensive leasing sector.
Funding problems and weakness in the airline industry are
forcing a number of companies to seek buyers for their leasing
units.
Klaus Heinemann, AerCap's chief executive, said Genesis provided
the best fit because the operations have little overlap. Its listed
status also made valuation easier.
"We're hoping that the market will see this as a sea-change,"
said Heinemann in an interview, noting that it reflected growth
opportunities for lessors not weighed by troubled parents.
Some of the sector's biggest players, including units of
American International Group Inc. (AIG) and Royal Bank Of Scotland
Group PLC (RBS), are seeking buyers at a time when aircraft values
and lease rates are falling.
Airlines have increasingly turned to renting aircraft as weak
finances left them unable to purchase equipment. The operating
lease sector has burgeoned, only for tightening credit markets to
leave some players unable to finance huge aircraft orders.
Heinemann, an aircraft finance veteran, will run the enlarged
AerCap business and its fleet of 358 aircraft, second only to the
Gecas unit of General Electric Corp. (GE) and AIG's International
Lease Finance Corp. business.
Heineman said the merger will produce synergies, including
cost-savings and increased clout with aircraft makers, Boeing Co.
(BA) and Airbus.
Another key goal is to build shareholder value: While aircraft
leasing has been profitable through the recent recession, industry
funding problems left Genesis undervalued, according to John
McMahon, its chairman and chief executive.
AerCap is offering one of its own shares for each Genesis share,
valuing the latter at $8.81 apiece, a 45% premium to their 30-day
average. Genesis shareholders would hold 29% of the enlarged
company.
Genesis shares were recently down 1% at $8.36, with AerCap off
3.3% at $8.52. Both companies floated in 2006, and Genesis shares
peaked above $30 the following year.
Both companies have young fleets, with an average age of 6 to 7
years, that have found customers even as some airlines downsized
and grounded older aircraft.
Pending approval by Genesis shareholders and government
regulators, the deal should close by the end of the year, the
executives said.
McMahon, who worked at AerCap until 2003, said he won't have a
role in the merged company. Genesis went public in 2006, with
backing from GE, which still holds more than a 10% stake in the
company.
Following the merger, AerCap would have 116 airline customers in
50 countries and a lease portfolio valued at $6 billion, Heinemann
said.
AerCap said Friday it would buy 13 aircraft from Gecas. GE has
been servicing Genesis' portfolio, but will end that arrangement
when AerCap chooses to do so.
"I have the option to terminate at any time, but for the time
being, I'm happy with leaving the situation as it is," Heinemann
said.
Heinemann said AerCap's near-term growth will focus on markets
that are gaining economic strength, including China and Brazil. In
China, he said, AerCap is securing aircraft financing from local
banks, which haven't been hurt by the global credit crunch.
-By Ann Keeton and Kevin Kingsbury, Dow Jones Newswires;
312-750-4120;ann.keeton@dowjones.com