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By Tim Hepher and Conor Humphries
DUBLIN (Reuters) – When Irishman Aengus Kelly got his first job leasing planes in 1996, it was with a company so unlucky that U.S. giant General Electric had the chance to buy him for a dollar.
Three years earlier, GE had taken over the gems of crumbling Irish charter empire Guinness Peat Aviation for $1.3 billion and renamed it GECAS, while the dumped rump that hired young accountant Kelly found itself with the “bad assets” of GPA.
Kelly completed a dramatic 25-year turnaround on Wednesday with a $30 billion acquisition of GECAS by AerCap, the direct descendant of assets GE discarded when it rescued the company built by legendary Irish entrepreneur Tony Ryan.
It’s a reminder of the sometimes dramatic risks and rewards inherent in a low-key, largely Dublin-based industry that owns 40% of the world’s airline fleets.
The deal marries AerCap, already the world’s largest lessor after earlier acquisitions, with No. 2 GECAS to create an industry titan with more than 2,000 jetliners and relationships with most major airlines.
After effectively bringing together the two wings of Ryan’s empire by taking over GECAS, Kelly vowed not to let the new Irish leasing giant controlled by AerCap suffer the same fate as GPA.
“These lessons were imprinted on me. You can’t run this business with a short-term liability structure or a balance sheet that’s not conservative,” Kelly said in an interview.
“The lessons have been learned the hard way. I won’t lie to you, but they will never be forgotten.
Known for his focus on risk management, the 47-year-old Dubliner is a very different character to Ryan, whose high leverage bets built and then destroyed a rental giant.
While Ryan’s career has been a rollercoaster that saw his fortune destroyed before a punt on low-cost airline Ryanair rebuilt it, Kelly’s rise has been slow and steady.
His strategy has been to maintain a strong balance sheet to strike killer deals when times get tough for his rivals.
ASSET VALUES
Kelly noted that AerCap purchased GECAS for less than the value of its assets on GE’s balance sheet, a move that GE said would trigger a $3 billion charge.
“No other aircraft leasing company has ever done an M&A transaction below book (value). Aercap has done it four times. Why are we able to do this? Because of our balance sheet conservative, because it puts us in a position to act when times are tough.
However, several aircraft transactions have been followed by asset write-downs by the buyer. Industry executives have warned there is a risk of further pressure on the value of assets purchased by AerCap as the coronavirus crisis hammers airlines.
“There’s always risk…but you weigh it all up when you make the trade,” Kelly said.
He also dismissed concerns over $25 billion in new debt, saying AerCap had retained a coveted investment grade rating.
That still leaves a rental monolith roughly three times the size of its closest rival facing questions about its size.
Kelly himself flagged concerns about too much growth at an Airfinance Journal conference in January last year, when he suggested a fleet of around 2,000 jets would be difficult to manage.
On Wednesday, he said he was confident AerCap could handle the volume of business without having to lower the price it charges airlines just to keep up with fleet turnover.
A significant number of low-value regional jets in GECAS’ portfolio have been placed to end of life, and GECAS has transitioned a significant number of narrow-body aircraft to cargo, he said.
All eyes are now on whether the next batch of lessors will be pushed for further consolidation or pressure regulators to demand concessions.
After the long road back since the fall of predecessor GPA, Kelly touted AerCap’s credentials as an independent lessor competing with big bank units. But other executives said suppliers, airlines and lessors were still digesting the deal.
“It’s a huge market… There’s a lot of competition out there,” Kelly said. “We compete every day with the juggernaut of the world’s largest banks that owns aircraft leasing companies.”
(Reporting by Tim Hepher, Conor Humphries; Editing by Steve Orlofsky)
