Operating lessor Aircastle is in talks to offload its aircraft leasing portfolio or merge with another entity, sources familiar with the matter indicate.
The listed US-based lessor has retained Citigroup to explore strategic options for its operating leasing platform, say sources. These options might include a sale, merger or partnership "but there are still lots of talk and approaches at this point," a source adds.
The lessor has not responded to a request for comment. Sources say Aircastle would like to enter a strategic agreement by year end.
The potential move follows the confirmation of Michael Inglese as chief executive officer in June, after Ron Wainshal stepped aside for health reasons.
Inglese had served as chief financial officer since 2007 and more recently as acting chief executive officer since Wainshal began his medical leave of absence in January this year.
As a consequence of Inglese's appointment the board promoted Aaron Dahlke to chief financial officer and interim chief accounting officer of Aircastle.
Aircastle owned 200 aircraft with a net book value of $6.6 billion at the end of the first quarter to 31 March. It also managed 13 aircraft with a net book value of $682 million on behalf of its joint ventures.
The lessor is due to report second-quarter earnings, which could include freighter impairments resulting in a “material reduction” of perhaps 8-10% to the company’s $1.86 billion book equity, Wells Fargo indicates in a research report.
"Since aircraft lessors appear to be valued by many on a P/B (price-to-book) ratio basis, a potential 8-10% reduction in book equity should matter," writes Gary Liebowitz, senior analyst at Wells Fargo.
On the other hand, Liebowitz observes that: Aircastle's shares have outperformed during the past five years even with the impairments mentioned; two large strategically-connected shareholders own 37.5% of the stock; and “non-cash” impairments should not affect the company’s ability to grow the dividend.
The lessor noted in a regulatory filing that 14 aircraft, eight passenger units plus six freighters, with a total net book value of $615 million are “more susceptible” to impairment.
The aircraft at risk include Boeing 747 freighters and older Airbus A330-200s.
During the first quarter Aircastle acquired eight aircraft for approximately $190 million and had commitments to acquire 10 additional units for more than $220 million.
These 18 aircraft have a weighted average age of approximately 7.9 years and a weighted average remaining lease term of 7.6 years. Narrowbody aircraft comprise 17 of the total aircraft acquired.
In March Aircastle boosted its coffers by issuing $500 million of senior unsecured notes with a seven-year term. The lessor said it would use the proceeds for general corporate purposes.
The notes due 1 May 2024 were priced at a 4.125% coupon.