* Avolon to become third-biggest lessor after purchase
* Deal is latest evidence of industry consolidation
* Cheap financing, global ambitions drive Asian lessors
* Leasing accounts for 40 pct of global airline fleet
(Adds details of deal, industry context)
By Anshuman Daga and Michael Flaherty
SINGAPORE/NEW YORK, Oct 7 Avolon Holdings, part
of China's acquisitive HNA Group, is acquiring CIT Group's
aircraft leasing assets worth $10 billion in a deal that
will create the world's third-largest lessor in a rapidly
Asian lessors, led by cash-rich Chinese banks, are spending
billions of dollars to expand in the $228 billion global
plane-leasing sector that offers long-term revenue in dollars.
Leasing accounts for some 40 percent of the world's airline
fleet as carriers increasingly rent planes to lower fixed costs.
"When you have a depreciating currency and local industries
are not showing strong growth, then aircraft leasing looks like
a pretty good option," said Johnny Lau, who ran aircraft leasing
units at some Chinese banks before starting his own consultancy.
Chinese conglomerate HNA bought Irish lessor Avolon last
year, building on a series of acquisitions in recent years as it
expands its global presence in aviation and related sectors.
Avolon is valuing CIT's aircraft leasing business at $10
billion, a 6.7 percent premium over the net asset value. CIT
said in a presentation the deal had an implied equity value of
CIT, whose shares rose 7.6 percent to $39.16 in extended
trading, had been exploring a sale or a spin-off of the business
since about a year.
The transaction will help Avolon add 334 owned and managed
aircraft and 133 planes already on order or committed to its
fleet of 443 planes, giving Avolon access to an additional 69
"While this transaction is strategically compelling and will
double the scale of Avolon, it is not the summit of our
ambition," Avolon's CEO, Domhnal Slattery, said in a statement.
Reuters reported in September that Avolon was nearing a
purchase of CIT's aerospace assets, which were also being
pursued by China's Ping An Insurance Group's
aircraft leasing arm, and Century Tokyo Leasing - a
joint venture partner of CIT.
Other interested buyers included lessor AirCastle,
which offered potential tax advantages as a U.S.-based company,
AerCap Holdings and General Electric's GE
Capital Aviation Services still dominate the global leasing
The CIT transaction will be funded by a combination of
Avolon's cash, new equity contributed by Avolon's parent Bohai
and debt financing of $8.5 billion. Bohai bought
Avolon in 2015 and closed the transaction this year.
With the new purchase, Avolon said it will have a fleet of
910 planes valued at over $43 billion. The deal is expected to
close in the first quarter of 2017.
The deal also marks another victory for Hudson Executive
Capital, the activist hedge fund founded by two former JPMorgan
bankers last year. Hudson held 1.2 million shares of CIT, or
around 0.5 percent of the stock, according to the fund's latest
Hudson was among the investors pressing CIT to sell the
aircraft leasing arm, sources said, adding that the fund has
also pressed CIT to shed its rail business and lending
Avolon's financial advisers for the transaction are UBS
Investment Bank and Morgan Stanley & Co LLC. Weil, Gotshal &
Manges LLP and Freshfields Bruckhaus Deringer are its legal
(Additional reporting by Tim Hepher in PARIS and Narottam
Medhora, Diptendu Lahiri and Ankit Ajmera in Bengaluru; Editing
by Bill Rigby and Muralikumar Anantharaman)