Leasing industry consolidation

Dino D'Amore
By Dino D'Amore January 28, 2016 21:43

Leasing industry consolidation

Is Avolon a top four lessor? I cannot make that work and neither can anyone else in this industry at the moment. I have them in sixth and many consultancies have them in seventh. Avolon has grown very quickly indeed. Bohai Leasing purchased Avolon just before its share price would have been hit along with all other listed lessors in the USA, so good timing for AVOL stock holders in the extreme but not perfect for Bohai in hindsight.

Talks between Bohai (and ICBC and others for that matter) and AWAS are now over, Terra Firma is asking too much for the lessor after valuing it on its books so very highly for all these years. As Bohai Leasing/Avolon cannot expand into the top four of aircraft leasing by acquiring AWAS, and they cannot do it either through sale and leaseback deals, therefore the only viable options remaining would be to purchase Aviation Capital Group or the CIT aviation business or through the purchase of part or all of GECAS, although the latter would take a colossal sum of money.

There is also the consideration that now AWAS is back on a certain growth path that Terra Firma will want to start building the business up again, and that could lead it to bid for other lessors and aircraft portfolios too. BOC Aviation, with what looks set to be an increased war chest in late 2016, will no doubt also be considering bidding for aircraft portfolios too, as will Goshawk and CMB Leasing and many more. These factors, with at least two large lessors both looking to expand, could well drive the price of CIT, Aviation Capital Group and others far higher over the coming year. So will Bohai wish to pay a premium for AVOL and then do the same again for another large lessor?

One thing is for sure, regulatory fallout from the credit crisis is driving the regulated financial services firms that own aircraft lessors to sell, while the Chinese authorities demand the opposite, causing financial institutions there to diversify at speed, thus aircraft leasing ownership is moving East at a rapid pace. With the entry to the market of the mighty Ping An Leasing, adding to CMB Leasing, CDB Leasing, CALC, Accipiter and Goshawk, the market will in 2016 remain one that airlines can control in the sale-leaseback space. It is also well worth noting that Goshawk is looking increasingly strong for quality expansion in 2016 and that is a team to keep an eye on.

But when considering the aircraft leasing top ten rankings, it must be remembered that whatever you think you know both BBAM and Orix Aviation are both far larger than everyone cares to believe. Thus to be a leading top three or four lessor, any company must create clear air between them and those around them, and for Avolon/Bohai Leasing that will involve the purchase of a very large number of aircraft indeed. Given we are in an uncertain market at this time, that need should lead Avolon towards the safe 737/A320 market and these factors would lead them straight to the door of Aviation Capital Group. Will Bohai Leasing move for Aviation Capital Group before the planned IPO or will it want to wait for the IPO to set a value before the company make a purchase bid as was the case with Avolon? One thing is for sure – aircraft leasing is a very hot market right now.

For the more pessimist reader, it is best to concentrate on the economic situation in both Greece, Egypt and Kenya. Both have seen tourist traffic fall off a cliff of late; Greece due to the migrant crisis, and Kenya and Egypt due to terrorist action. Each of these countries and the airlines most associated with them deserve close attention during this testing time.

Dino D'Amore
By Dino D'Amore January 28, 2016 21:43