January 22, 2018 / 5:30 PM / 6 months ago

AerCap CEO does not expect wave of aircraft finance M&A

DUBLIN (Reuters) - The head of the world’s largest aircraft leasing company, AerCap (AER.N), does not expect a significant number of mergers or acquisitions in the sector despite pressure on the owners of two of his largest rivals: GECAS and Avolon.

FILE PHOTO: Aengus Kelly, CEO and Executive Director of AerCap attends the 2016 International Air Transport Association (IATA) Annual General Meeting (AGM) and World Air Transport Summit in Dublin, Ireland June 1, 2016. REUTERS/Clodagh Kilcoyne

Chief executive Aengus Kelly told the Airline Economics conference in Dublin on Monday that the draw of consistently stable returns would make owners of major aircraft leasing firms very reluctant to sell.

“M&A is a continual theme. But do I think there will be much of it? No,” Kelly said. “Sellers that have been in this business a long time are very reluctant to take out an asset that has generated such stable returns historically.”

He said he did not expect to see an attractive acquisition opportunity in the sector unless there was significant stress specific to one of the owners.

Asked specifically about rivals GECAS and Avolon, Kelly said it was “impossible to say” what might happen, with both businesses showing consistent profitability.

GECAS owner General Electric (GE.N) indicated last week that it was looking closely at breaking itself up as the conglomerate announced more than $11 billion in charges from its long-term care insurance portfolio and new U.S. tax laws.

Avolon’s ultimate owner HNA group has admitted in recent months to liquidity problems.

Kelly said the aviation sector was facing the prospect of increases in two key input costs: fuel and interest rates.

While the oil price could tax some airlines if it climbs to $80 from just under $70, the business models of some airlines could be “stretched” he said. [L8N1PH5K5] Higher oil could nudge carriers towards more fuel-efficient newer planes, he said.

Higher interest rates should be good for the aviation finance sector so long as the increase does not come too quickly, he added.

“A rising rate environment is a good thing as it generally brings with it some form of asset inflation because it is reflective of a more positive global GDP,” he said.

“But there can be a lag before that inflation occurs and that is where you have to make sure that the business is soundly funded when you have short periods of volatility.”

While some firms that entered the market in recent years due to low yields elsewhere may leave the sector if interest rates rise, others will likely move in to take advantage of the higher rates, he said.

Reporting by Conor Humphries; editing by Alexander Smith

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