AerCap to Buy Genesis

After being significantly hurt by the economic downturn, the first wave of deals to stabilize the aircraft leasing industry is now on its way. Dutch aircraft leasing firm AerCap Holdings (AER) said on Friday it would buy Genesis Lease Ltd. (GLS) in an all-stock deal worth $302.6 million for greater scale and access to more funds for aircraft purchases.

The weak market condition has created the necessity for such consolidation. The combined entity will create the largest publicly listed aircraft leasing company, controlling about 5% of the total leased market. With 358 commercial aircraft and 83 engines that are either owned, on order, under contract or letter of intent, or managed, the combined company is expected to significantly contribute to the recovery of the industry. It will also have 116 airlines as clients, with a lease portfolio value of about $6 billion.

According to the deal, Genesis shareholders will receive one AerCap ordinary for each Genesis share, at $8.81 per share, representing an average premium of 45% over the price during the 30-day trading period from July 31 to Sept. 11. Based on Genesis' assets, the deal was valued at $1.75 billion.

Over the next two years, AerCap will get access to $200 million of unrestricted cash of Genesis. Also, about $1.1 billion of Genesis’ debt facility will be transferred to AerCap.

Genesis was rolled out of General Electric Co.'s (GE) aircraft leasing unit in 2006, with GE Capital Aviation Services (GECAS) acting as servicer for the portfolio. GECAS will continue to provide most asset management services for Genesis in the near term. However, as part of the agreement, AerCap will also buy 13 aircraft from GECAS.

Among others, American International Group Inc. (AIG), Royal Bank of Scotland Group Plc (RBS) and CIT Group Inc. (CIT) are mulling the sale of their aircraft-leasing businesses as the financial crisis has made funding hard to come by.

Citigroup Inc. (C) advised Genesis on the deal, while Morgan Stanley (MS) and UBS AG (UBS) acted as financial advisors to AerCap.

Pending shareholder and regulatory approval, the deal is expected to close in the fourth quarter of 2009. We expect more consolidation in the industry in the upcoming quarters.

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