Consolidation has been a much-debated topic through the pandemic crisis, but one that has focused on which airlines might fail or merge. But all eyes shifted to the leasing sector when AerCap confirmed a deal to acquire GE’s leasing arm, GECAS—something equivalent to a supernova lessor merger.
Assuming the deal gets through antitrust scrutiny, a combined AerCap/GECAS would be faraway the largest player in the market, with a portfolio of more than 2,000 aircraft. AerCap’s particular strength in narrowbodies and GECAS’ in regional aircraft also will make it a powerhouse in the smaller, more flexible aircraft that are likely to be in greater demand through the next few years if, as expected, domestic and leisure travel demand recovers quicker than the international and business sectors.
It is understandable, therefore, that some airlines may be nervous about what this means for their relationships with the lessors, particularly if—as some speculate—it prompts wider consolidation.
That nervousness may be compounded by the fact that airlines are more dependent than ever on lessors, which have become critical capital lifelines and fleet solution providers through the pandemic.
Lessors have enabled airlines to raise desperately needed cash via multimillion-dollar sale-and-leaseback deals and to quickly realign their fleets to a suddenly and drastically changed market environment. The world’s top brand leasing companies not only typically entered the pandemic in a better financial position than the airlines—the best having billions of untapped liquidity—but they also had a deep understanding of their airline customer situations based on decades of relationship building.
Air Lease Corp. chairman Steven Udvar-Hazy, a master at such relationship building, said last year he believed the percentage of the global fleet that is owned by lessors could grow from around 40% to up to 55%. With the AerCap/GECAS merger, that possibility seems more likely than not.
But this is not necessarily reason for airlines to be concerned. Consolidation in the leasing sector may have been prompted by the pandemic crisis, but it was long overdue. Numerous startups have created too many players.
Where concern might be more justified is among the aircraft and engine OEMs, which are themselves highly consolidated. But if larger, more powerful lessors can extract better deals for their aircraft and engines, based on scale, then that should work to the advantage of the airlines, if not to Airbus and Boeing.
Consolidation, where it has occurred among airlines, has brought mostly pros, not cons. Devastating as the pandemic has been for this industry, and as much as state aid has helped where available, those airlines that had already done the work of restructuring, adjusting costs and growing networks through mergers were in a much better position to ride out the crisis. Exhibit A, of course, is the US carriers, but the large consolidated airline groups of Europe would have been in a far more perilous position without the foundational strengths that their mergers enabled.
Though less financially harmed, the leasing companies have not escaped the ravages of COVID-19. Where an acquisition or merger emerges as an opportunity born of the crisis, but ultimately makes the companies stronger, it should not be feared.
A strong leasing industry is a strong airline industry partner.
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