Adeal Oct. 6 could provetransformational for the buyer, the seller and the entire aircraft leasingindustry.
-backed AvolonHoldings Ltd agreed to purchase the aircraft leasing business ofCIT Group Inc. in atransaction that will more than double the size of the acquirer's fleet,positioning it to rank as the industry's third-largest participant on a proforma basis.
Thecombined Avolon- and CIT Aerospace-owned, managed and committed fleet includes910 aircraft with aggregate value of more than $43 billion. CIT Aerospace, on astand-alone basis, owned or managed 334 aircraft and had orders or commitmentsfor 133 aircraft. The combined entity will have 154 airline customers in 61countries that will be evenly split across Avolon's three major geographicregions.
Accordingto data cited in the informationstatements filed by C2 Aviation Capital Inc as CIT pursued its for aseparation or sale of the aircraft leasing business, Avolon ended 2015 as the11th-largest global operating lessor based on the number of aircraft units itowned or managed. CIT Aerospace ranked fourth-largest on that basis, behindGeneral Electric Co.'sGE Capital Aviation ServicesInc., AerCap HoldingsNV and the SumitomoMitsui Financial Group Inc. majority owned
reports linked thelikes of Ping An Insurance(Group) Co. of China Ltd., Century Tokyo Leasing Corp. and , in addition to Avolon,to a prospective purchase of CIT Aviation.
Avolonclaimed the mantle of the world's No. 4 aircraft lessor when it assumedmanagement of Hong Kong Aviation Capital in January. The two lessors came undercommon ownership upon the completion of Bohai's acquisition of Avolon, whoseshares had been publicly traded on the NYSE. Key minority investors in Avolonat the time of its December 2014 initial public offering included fundsaffiliated with CinvenLtd., CVC CapitalPartners SICAV-FIS S.A., Oak Hill Capital Management LLC, and
"Froma standing start we will have built Avolon into a leading global player in sixyears," said CEO Dómhnal Slattery in a release. And the materially largersize of the company on a pro forma basis notwithstanding, he added, theacquisition "is not the summit of our ambition."
Whetherthe deal represents the last in a line of large deals in the aircraft leasingindustry, following transactions in 2012 and 2013 that resulted in theformation of SMBC Aviation Capital and AerCap Holdings NV's May 2014 of International LeaseFinance Corp., or the precursor to additional consolidation to come remains tobe seen. Those deals, in combination with the launch of new players like Avolonand Air Lease Corp.,have resulted in a dramatically alteredlandscape in the aftermath of the financial crisis.
CIT hasalso undertaken a transition in the past several years as it seeks toreposition itself as a national, middle-market commercial bank. The sale of theaircraft leasing business represents a milestone in the company's execution ofthat strategy, which has also included the divestiture of a number ofinternational businesses and the August 2015 acquisition of the parent of the formerOneWest Bank.
Althoughone analyst during the CIT call raised certainty of closure as a potentialconcern — an issue that presented a roadblock to inits initialeffort to divest ILFC years earlier — another referenced Bohai'spurchase of Avolon as an example of the acquirer having "proventhemselves" in that regard.
Dealterms call for Avolon to pay $10 billion for $9.4 billion in net asset value,representing a premium of 6.7%, to be financed through a combination of cash,new equity to be contributed by Bohai and $8.5 billion in committed debtfinancing.
Chairwomanand CEO Ellen Alemany said CIT considered Avolon's strategic rationale,financial strength, the all-cash nature of the consideration, the"meaningful premium" to net assets the deal value implies and thedeposit of the termination fee in a U.S. bank in deciding to pursue thetransaction.
"Takingall these factors into account," she said, "we really believe thatthis transaction was the best transaction to pursue for our shareholders."