What happened

Shares of AerCap Holdings (NYSE:AER) jumped more than 12% at the open on Monday on reports the air leasing specialist is near a transformative deal with General Electric (NYSE:GE). AerCap is among the best operators in this niche area, and investors are responding enthusiastically to the idea of the company adding to its fleet.

So what

AerCap is in the business of buying airplanes and leasing them back to airlines. That involves taking on a lot of debt, and the stock fell by nearly 75% in the early days of the pandemic on fears that airline customers would default and drag AerCap down with them.

That proved to be an overreaction, and the stock has gradually recovered most of what it lost as management was able to demonstrate the resiliency of its portfolio and airlines began to recover. Now, AerCap appears poised to dramatically grow its business and investors are taking notice.

A plane taking off on the runway.

Image source: Getty Images.

AerCap is in discussions to acquire GE Capital Aviation Services, or GECAS, from General Electric, according to a Wall Street Journal report. The combination would create a $30 billion entity with more than 3,000 planes either owned, managed, or on order.

For General Electric, the deal would be an opportunity to continue its long-running restructuring campaign and reduce the financing side of the business.

Now what

A deal has not been announced as of Monday morning, and even if it is made official in the days to come the companies would still have to clear regulatory hurdles and get to closing. A transaction of this size also comes with integration risk. Still, I'm as excited as the market is about the potential of this combination.

AerCap's management team has experience integrating large deals, having bought International Lease Finance Corp. from American International Group in 2014. And the company over the years has proven itself as an astute buyer and seller of airplane assets.

After the pandemic, airlines are likely to lean on lessors even more than they have before as they try to keep added debt off their balance sheets and pay down loans that got them through the crisis. And AerCap, due to its size and scale, would have significant leverage to use when negotiating new plane orders from Boeing and Airbus.

AerCap was already the single best way for investors to play an airline recovery. If this deal with GE gets done, a powerful company is only going to get stronger.

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