It would allow to retire 4% of all shares by selling only 1.4% of the equity asset base, for a total accretion of 2.7% in H2 2023. The accretion from this public-private arbitrage is exceptional. This means $806 M of equity book value accruing to non-selling shareholders, by selling only $287 M of equity book value (500/1.74). If AER is able to sell $500 M of assets (somewhat slower pace vs H1) at a 20% unlevered gain (lower than the H1 23% average) - or a 74% levered gain on equity book value - it would unlock another repurchase of 500/(1-38%) - 38% being my pro-forma NAV discount. In reality, AER is not growing its equity value proportionally with the accounting profit, as it is happily selling many higher risk, older assets to recycle into buybacks, so the gross receipts of this activity alone (excluding leasing profits) counts for another cash build of ~$300 M per quarter (second last column in the table) not taken into account. In my math to arrive at a pro-forma NAV per share above, I only allowed for an estimate of Q3 accounting profit to build up as excess capital. I believe Q1 and Q2 were truly exceptional.
Unlevered gains on aircraft sales used to be between 8% and 15% since IPO. I believe the news is a step-change in shareholder value. We see that the NAV per share can quickly rise beyond 38% at a $59 share price in the foreseeable future. The final NAV estimate I reached in the second last table is before potential new large buybacks from other potential Russian claim receipts or further aircraft sales momentum. Recent Gains on Sale metrics by AerCap (Company documents) I fully expect management to aggressively resume the open market buyback, especially in the light of Aengus Kelly's comments on the last Aircraft Finance conference a few days ago "our shares are the cheapest aircraft on sale right now", and on the other hand the historically high gain on sale margins AER is realizing in the last quarters: As I mentioned earlier, I believe the open market purchases were paused to negotiate a better mammoth block deal price with GE. We can see the deal generates lots of value for shareholders out of the gate.Īs I lay out at the bottom of the table, the immediate potential for an aggressive open market buyback is high given there is leftover excess capital even after AER devours the GE block deal. Pro-forma math on GE secondary offering and H2 (Author's own calculations based on company documents) When reading this table, it is important to realize that prior to both the Aeroflot cash hitting the and the GE secondary offering, AER was already at the bottom of its desired D/E leverage ratio (i.e. The same playbook was used on the post-GFC AIG restructuring, ILFC sale to AER, and consequent mammoth buybacks below NAV. This is not the first time AerCap has endeavored to devour the share capital of its takeover prey. My following table will run through the NAV per share step by step as AerCap's block repurchase and remaining excess capital budget for follow-on open market unfolds rapidly.
The GECAS deal magic is happening now: Pro-forma math and valuation I will have to note, though, that the remaining Russian claims (at face value $2.7 billion) - which would be considered excess capital - more than cover this remaining GE stake ($2.2 billion). Given that GE has sold a first tranche (a billion dollars, half of which goes to AER's buyback) in spring this year, the market will probably start discounting a (now more likely) scenario of another secondary sale not too far off, and the associated overhang. A small overview:Ĭompany press release: GE's secondary share offeringĪs you can notice in the last line of the picture, after this large secondary offering, GE's remaining stake will still be 16.5% of the current market cap. This leaves us with a net supply worth 11% of the shares outstanding flooding the market. Indeed, AER is buying 37% of the offering as a share repurchase at the advantageous lower price of $57.5 per share. I suspect AerCap management stopped the share buyback in July to not increase the market price, and to be able to buy a block cheaper. The total sale represents 18% of AerCap's market cap. The results tell us GE is selling a bit more than half its stake to the public at around $59 per share.
In the late evening, the offering was priced and upsized. GE owned 77.8 million shares worth $4.8 billion, or a third of the company. Franco Origlia/Getty Images News General Electric's AER stake sale: A basic overviewĪerCap ( NYSE: AER) announced a secondary share offering by its largest shareholder, General Electric ( GE).
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