Increased Order Competition Upon Aircap-Gecas Merger... Negative Impact on Boeing and Airbus

[Image source= AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Adverse developments continue for aircraft manufacturers Boeing and Airbus.

The Wall Street Journal (WSJ) analyzed on the 9th (local time) that if the merger between Ireland's AerCap, the world's largest aircraft leasing company, and GE Capital Aviation Services (Gecas), a subsidiary of General Electric's (GE) aircraft leasing division, is successful, Boeing and Airbus will have to compete for aircraft orders with the merged company as well. WSJ noted that currently half of the world's passenger aircraft are leased, and the merger of AerCap and Gecas would deal a blow to Boeing and Airbus.

Earlier, there were rumors about AerCap's negotiations to acquire Gecas, and on this day AerCap confirmed that it is indeed negotiating the purchase of Gecas from GE. The acquisition price is expected to exceed $30 billion.

AerCap became the world's largest aircraft leasing company in 2014 when it acquired International Lease Finance Corporation (ILFC) from American International Group (AIG) for $7.6 billion. Currently, it owns and manages about 1,050 aircraft. Gecas is the second-largest aircraft leasing company, owning and managing over 900 aircraft. Upon merger, the combined company would own more than 2,000 aircraft. It is known that the two companies have placed additional orders for about 500 aircraft with Boeing and Airbus.

The aircraft leasing industry has developed since the 1970s. Initially, it started by leasing aircraft to small airlines that found it difficult to purchase planes. Leasing companies were able to reduce costs by ordering aircraft in bulk, which also brought cost savings to airlines leasing from them. Airlines began leasing aircraft for long periods of 5 to 12 years instead of purchasing them, and the influence of leasing companies grew steadily. Currently, U.S. airlines such as Delta Air Lines, JetBlue Airways, and Southwest Airlines sell their owned aircraft to leasing companies and then lease them back to operate flights. John Plueger, CEO of aircraft leasing company Air Lease, said, "If leasing companies disappear, the situation in the aviation industry would be much worse than it is now."

According to investment bank Jefferies, despite the merger of the top two companies, their market share is only 7%. The merged company's share of aircraft orders from Airbus and Boeing is also expected to be only about 4%. Therefore, the merger of AerCap and Gecas is not expected to violate antitrust competition laws.

Last year, Boeing and Airbus suffered significant damage due to a drop in aircraft demand caused by COVID-19. As expectations grow for a recovery in aircraft demand this year, the emergence of a mega aircraft leasing company introduces a new variable. Recently, a new competitor, Chinese aircraft manufacturer COMAC, has also appeared. COMAC officially entered the market earlier this month by signing its first formal contract with China Eastern Airlines.

This content was produced with the assistance of AI translation services.