Aircraft leasing's slow shift towards vertical integration took another step this week with Tokyo Century's decision to buy out California-based Aviation Capital Group.
Already, the Japanese firm is a shareholder in parts specialist GA Telesis (GAT), with which it and ANA Trading are also developing a tripartite engine leasing joint venture.
It has agreed to pay roughly $3 billion for the 75.5% of ACG it doesn’t own from Pacific Life Insurance as part of a bid to improve its “aviation business value chain."
To do so, Tokyo Century said it would pursue “organic collaboration among its own aviation financing business…and aircraft aftermarket related businesses leveraging GAT’s expertise in used aircraft and parts."
This strategy follows in the footsteps of lessors including China Aircraft Leasing, which has a stake in a teardown facility, and GECAS, which offers engine leasing and materials services.
Meanwhile, several parts specialists have added aircraft and engine leasing to their product offering in recent years.
However, Tokyo Century’s acquisition faces some concerns. Rating agencies S&P and Fitch both expect to downgrade certain ACG credit ratings due to the removal of support from Pacific Life, whose finances they prefer to Tokyo Century’s.
Japanese agencies, meanwhile, have warned of a potential downgrade for Tokyo Century, noting that assets of ACG at over $11 billion are almost a third as large as those of the Japanese financial group.
ACG is the world’s 10th largest lessor with a portfolio of almost 300 aircraft.
Nonetheless, both ACG and GAT should benefit from being under one roof. ACG will gain a handy exit route and some residual value protection for its older aircraft, while GAT may win some preferential access to feedstock for the most in-demand parts and engines.