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Why AerCap Holdings Stock Climbed This Week

By Lou Whiteman – Nov 4, 2021 at 3:10PM

Key Points

  • This week, AerCap closed its $30 billion deal for the aircraft finance arm of General Electric.
  • The deal creates a market leader with a fleet of more than 2,000 planes and another 450 on order.
  • AerCap is one of the best ways to gain exposure to long-term travel growth without the risk of an individual airline stock.

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There's a new dominant force in the aircraft finance business.

What happened

On Nov. 1, AerCap Holdings (AER 2.23%) closed a deal that makes it the dominant force in the world of aircraft leasing. Investors are excited by the potential of the combination, sending the shares up nearly 10% for the week as of midday trading on Thursday.

So what

AerCap is an aircraft lessor, a company that buys planes directly from manufacturers and sources them to airlines on long-term leases. Airlines like the arrangement because it allows them to keep the high cost of new planes off of their balance sheets and can provide more fleet flexibility.

A plane flies above a row of palm trees.

Image source: Getty Images.

Entering the year AerCap was one of the largest global lessors, but in March it announced a $30 billion deal to acquire the GECAS unit of General Electric (GE 2.29%) to nearly double its size. The combination figures to reshape the aviation industry, giving the merged AerCap significant leverage when negotiating new airplane orders with Boeing and Airbus.

On Monday, the deal closed. In regulatory filings related to the close AerCap also previewed third-quarter results, saying it expects revenue to come in between $1.43 billion and $1.46 billion, well above expectations, thanks to the sale of some unsecured bankruptcy claims.

Now what

The new AerCap is the undisputed leader in the field with a portfolio of more than 2,000 aircraft, 900 engines, and an order book of more than 450 airplanes set for delivery this decade.

These leasing businesses always come with risk, though AerCap's ability to navigate through the pandemic without getting bogged down by its debtload speaks well to management's ability to handle its portfolio. GE also seems likely to sell down its 46% stake in the company over time, which could provide some short-term pressure on the shares at some point down the line.

But for those bullish on long-term global travel growth, AerCap offers a rare opportunity to gain exposure to that growth without being overly tied to one airline or one manufacturer. Investors are excited about the potential, sending shares up for the week.

Lou Whiteman owns shares of AerCap Holdings. The Motley Fool recommends AerCap Holdings. The Motley Fool has a disclosure policy.

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