As I noted previously, I think the deal was bad. I am just quietly watching the stock slowly drift lower - it will be interesting to see how the new few quarters go.
Without going through all of the numbers my view of the deal is simple. There were very few prospective buyers - AER was one of them. This put AER in a great position to get a great deal - they just needed to play hard ball - they failed to do so. It is kind of like buying a car, if you decided you want a car before you buy it, then you are unlikely to get the best deal - but if you have a number in mind and are willing to walk, then you can drive the deal. AER should have walked on GE - I bet GE would have chased and AER could have saved a good $10 billion or so...Just my opinion - but whether or not you agree with me - the market action since the deal has been luke warm at best - which should tell you a lot about how the big guys view the deal...
J
Just listened to conference call with management and ran through the numbers. AER is purchasing (GECAS's) $34-35B of leased assets for $31.2B ($6B equity, at a $56 share price, plus $25B debt), equal to an EV/leased asset ratio of 90-92%, an 8-10% discount to book. Deal will roughly double AER's leased assets (when finalized in late 2021) and GE will own 44% of the combined company's 241.5M shares. Timing of doubling leased assets is great given that the industry's financials will recover strongly in 2021-2024 (from the 2020 Covid downturn), with leasing likely representing 60%+ (from 40%) of airline fleets (as airlines foremost focus on reducing debt loads rather than purchasing planes). The combined entity should generate $5B and $6B in cash flow in 2021 and 2022 (what they did in 2019), equal to $20.70 and $24.80 per share, respectively. Cash flow will be used initially to reduce leverage (3X debt/equity after deal) and then to buy back shares. GE's three (9, 12 and 15 month) AER share lockups enable GE to benefit from AER's financial rebound. AER (at $56) is trading at 2.7X and 2.25X (combined entity) 2021 and 2022 operating cash flows. AER share price should appreciate to $85-100 (3.5-4X cash flow) over next 24 months. Stock is a strong BUY.
j
I just sent this note to AER IR contact : "Good day;
I have been an investor in financial stocks for over 40 years... An observation/comment if I may. I do not believe there is a lease you can make that has a greater return ,less risk then to immediately commence a major share buyback! Unless aircraft are only worth .20 cents on the dollar I would like to understand how a buyback is not the most alluring opportunity that management has ever encountered!
Please let me know what I am not understanding ,
Thank you
"
j
A buyback at 33% of the $75 BV is a guaranteed winner for shareholders! No credit risk! Or are shareholders better off sitting with the liquidity for the strong sales/leaseback returns that will occur once the FAA gives the ok to the 737 Max; and airlines look for financing.? How about a blend. I know they want a boost in their credit rating,so are being conservative, but buying shares back is a no brainer!!! Hello
j
Still less than 50% of >75 book value, I am assuming we get a beat on earnings based on companies recent update! Now vaccine coming shortly!
D
Anybody still here? No reopening investors left? Everybody split for the latest reddit buzz stock?
G
Deal seems fair valued. Rough calculation: 30 bln for an annual revenue of 3.7 bln (average of 2018 - 2020), about 12%. Similar to Aercaps revenue / enterprise value. Fleet ages are similar. So overall I expect the outcome will be good. More scale, negotiation power etc.
F
So in a good year gecas makes 1b profit, we now spend 6b in equity to get it. Which makes it a yield of 16%. However, we also add 25B in cash payment, financing for 10 year at let's say 2,5% would deduct about 600M from the profit. Meaning we are left with 400M which is 6,7% on our equity. I am not sure this is what I want, I might vote against the deal. But maybe somebody can explain this more to me. I also worry since gecas had declining revenue for the last couple of years before covid.
N
A few people have misunderstood this GECAS purchase slightly so I just wanted to point out to everyone who may be in a similar situation:
AER is buying GECAS for $31.2 billion ($24 billion of cash from debt issuance + $1 billion in cash or notes + $6.2 billion worth of stock).
AER is NOT assuming any GECAS/GE debt in the deal. GECAS is being acquired debt free, with GE retaining any debt related to GECAS to be paid off as they will with the money they receive from AER. When AER closes the transaction in ~Q4 2020 their debt balance will have increased by ~$24 billion as a result of the transaction. It will not be ~$24 billion + $20+ billion of GECAS debt. They're paying so much in cash because the company is coming to them without any debt on the books.
This is basically the opposite of AER's purchase of ILFC in 2014 when they paid $7.1 billion in cash and stock while assuming $21 billlion of ILFC's net outstanding debt in the transaction.
L
Positive Q2 report; ahead of estimates. The company is well capitalized to manage through the continued uncertainty as a result of the pandemic. There is a lot of speculation about air travel and how long a rebound may take, but business professionals and consumers travel as a means of necessity and preference. The need and desires are not suddenly gone, as soon as people determine it is safe they will begin traveling again. It may be a bit of a waiting game but buying this in the 20s should be a great payoff.
F
AER's stock performance is in along with the rest of the airline stocks performance. David Einhorn owns over 11% of AER stock in his portfolio and is considered one of his top owning. Imagine if David Einhorn acts the same way like Warren Buffett to liquidate all of his shares. Risky investment now.
B
Who's holding to 60?
T
I think these guys are in more trouble then most have thought. A few months go, I thought -- no way - do the major airline go under - the government simply won't let that happen. We have a big problem however, the government is even more disfunctional then usual. I do not see anyway - the airline get any help before December. If Democrats win, they may never get any help, or the help may come in the form a government ownership. If we have divided government - who know. The only way help will come for sure, is if Republicans are in a position to control the WH, House and Senate. Then think what happens (no help at all) if we have a contested election...Meanwhile, we are probably at least 6-9 months away form any help from a vaccine - maybe even longer. Then you consider, their may be a need to retro fit or replace a lot of AER existing fleet - I suspect their will be demand for more space between seats and rows going forward. AER - could find itself, with most of their customer base, unable to make lease payments...I think we could see the lows get tested gain, nd maybe broken, before this gets better...
A
This will be the winner out of all airline stocks. I consider relatively the safety among in long run.
M
Double or Half
AER performs to peer AL is unbelievable, goes down double of s/h while on a good day goes up only half as much look at the gap. Someone with better knowledge, please share your thoughts. TIA
s
$AER Target Raised by Barclays Overweight USD 58 » USD 68 Upgrades Stephens & Co. Overweight USD 58 » USD 88 Target Raised by Deutsche Bank Buy USD 55 » USD 67
b
I've owned this one before, but seems like a Return on Assets of 3.46% is low. Also, I question why this company, given its' steady earnings and moderate growth profile does not throw off a dividend.
J
This stock up so much w/o Company making any announcement as to how they’ve been doing, cash churn rate, etc. This indicates to me that the markets are in a speculation-driven rally...
G
Loss is purely caused by a non-cash devaluation of assets (which is great tax-wise). It is all about referrals. In Q3 deferrals increased by 50 mln which is less than the increase during Q2 (100 mln), and similar to Q1. So given the circumstances still doing very well, lots of cash still coming in.
j
If upper management decided to buy some shared for themselves ,I think it should make a positive statement to the market.
Without going through all of the numbers my view of the deal is simple. There were very few prospective buyers - AER was one of them. This put AER in a great position to get a great deal - they just needed to play hard ball - they failed to do so. It is kind of like buying a car, if you decided you want a car before you buy it, then you are unlikely to get the best deal - but if you have a number in mind and are willing to walk, then you can drive the deal. AER should have walked on GE - I bet GE would have chased and AER could have saved a good $10 billion or so...Just my opinion - but whether or not you agree with me - the market action since the deal has been luke warm at best - which should tell you a lot about how the big guys view the deal...
I have been an investor in financial stocks for over 40 years... An observation/comment if I may. I do not believe there is a lease you can make that has a greater return ,less risk then to immediately commence a major share buyback! Unless aircraft are only worth .20 cents on the dollar I would like to understand how a buyback is not the most alluring opportunity that management has ever encountered!
Please let me know what I am not understanding ,
Thank you
"
So overall I expect the outcome will be good. More scale, negotiation power etc.
AER is buying GECAS for $31.2 billion ($24 billion of cash from debt issuance + $1 billion in cash or notes + $6.2 billion worth of stock).
AER is NOT assuming any GECAS/GE debt in the deal. GECAS is being acquired debt free, with GE retaining any debt related to GECAS to be paid off as they will with the money they receive from AER. When AER closes the transaction in ~Q4 2020 their debt balance will have increased by ~$24 billion as a result of the transaction. It will not be ~$24 billion + $20+ billion of GECAS debt. They're paying so much in cash because the company is coming to them without any debt on the books.
This is basically the opposite of AER's purchase of ILFC in 2014 when they paid $7.1 billion in cash and stock while assuming $21 billlion of ILFC's net outstanding debt in the transaction.
The need and desires are not suddenly gone, as soon as people determine it is safe they will begin traveling again. It may be a bit of a waiting game but buying this in the 20s should be a great payoff.
AER performs to peer AL is unbelievable, goes down double of s/h while on a good day goes up only half as much look at the gap. Someone with better knowledge, please share your thoughts. TIA
Target Raised by Barclays Overweight USD 58 » USD 68
Upgrades Stephens & Co. Overweight USD 58 » USD 88
Target Raised by Deutsche Bank Buy USD 55 » USD 67
It is all about referrals. In Q3 deferrals increased by 50 mln which is less than the increase during Q2 (100 mln), and similar to Q1.
So given the circumstances still doing very well, lots of cash still coming in.