February 5, 2014 / 3:01 PM / in 4 years

Fitch: AerCap-ILFC Deal Signals Strong Aircraft Leasing Outlook

(The following statement was released by the rating agency) CHICAGO, February 05 (Fitch) The expected closing of AerCap Holdings NV's (AerCap) acquisition of International Lease Finance Corp. (ILFC) in the second quarter will mark an important and positive turning point for the aircraft leasing industry, according to Fitch Ratings. On completion of the acquisition, a long period of lessor ownership uncertainty will come to an end, and strong public market acceptance of the deal is a credit positive for the entire industry. The sale of ILFC by AIG represents the last transfer of a large fleet of leased aircraft (more than 900), following RBS's sale of its leased aircraft fleet in 2012 and CIT's re-emergence from bankruptcy. Once the AerCap deal closes, we believe material consolidation in the industry will be complete, with two large players (AerCap and GECAS) controlling close to half of all lessor-owned aircraft globally. However, there may still be M&A opportunities for the smaller players. Smaller lessors may feel increased pressure to sell or combine with another player to achieve the critical mass necessary to compete effectively in a more consolidated industry. We believe scale plays an important role in driving lessors' financial performance, particularly given the need to shift leased aircraft out of underperforming regional markets. Returns to scale tend to diminish, however, with reduced benefits appearing once lessor fleets reach 200-300 aircraft. Following AIG's exit from the business, the strategic uncertainty surrounding ILFC's ultimate buyer will be resolved after more than five years. We think this is an important step for the industry, ending ownership uncertainty and transferring assets to a pure-play lessor. Additionally, the mark-to-market of ILFC's fleet could lead to improved support for aircraft valuations since risks of any further aircraft impairments will be reduced in the transaction. We expect AerCap to continue pursuing an active aircraft trading strategy, which will support activity in the secondary market. Over time, the increase in AerCap's market capitalization should lead to improved access to equity markets for other aircraft lessors. This could lead more lessors to contemplate public equity offerings. Air Lease Corp. has been the only aircraft lessor to IPO since 2007, but we expect more activity as private equity sponsors continue to look for exit opportunities. Increased liquidity and trading volume, supported by strong equity market performance over the last 18 months, should lead to a better funding environment with strong public participation, a positive for credit. AerCap's Issuer Default Rating (IDR) is currently on Rating Watch Negative, while ILFC's IDR is on Rating Watch Positive. Upon consummation of the acquisition, Fitch expects to equalize the IDRs of the two companies at 'BB+'. Contact: Ilya Ivashkov, CFA Director Financial Institutions +1-212-908-0769 Bill Warlick Senior Director Fitch Wire +1-312-368-3141 Fitch, Inc. 70 W. Madison Chicago, IL 60602 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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