CIT Transport Sale Could Raise $8 Billion, But Market Conditions Tough
22 Luglio 2009 - 11:53PM
Dow Jones News
CIT Group Inc. (CIT) could raise more than $8 billion from the
sale of its profitable transport assets, though the value likely
would be pressured by weakening end markets and rival sellers.
In recent quarters, the aircraft and rail leasing units have
been the most profitable for CIT, the U.S. financial services group
that staved off bankruptcy this week with $3 billion in fresh
financing. The parent company still faces serious financial
challenges.
CIT used part of its aerospace unit's assets as collateral for
the fresh funding, which it secured after the U.S. government last
week backtracked from providing support. Lenders would likely have
to approve any transaction involving aircraft.
The company hasn't confirmed whether it would seek buyers for
the aircraft and rail units, and couldn't immediately be reached
for comment Wednesday. Both businesses have attracted interest from
prospective bidders over the past two years.
CIT dropped plans last year to sell the rail unit after finding
offers unattractive, while the larger aircraft business would join
three or more rivals seeking buyers, and market conditions in both
sectors have softened.
General Electric Co. (GE), which owns the largest aircraft
leasing business, also explored a sale of its rail unit last
year.
The CIT Aerospace unit leases and manages a fleet of 302
aircraft, according to consultant UBM Aviation Worldwide, ranking
it among the top five in the industry by value. It has an
additional 109 on order.
While CIT hasn't signaled plans to sell transportation assets,
any effort to raise funds faces the hurdle of efforts by American
International Group Inc. (AIG) to sell International Lease Finance
Corp., one of the two dominant aircraft leasing companies. GE's
Gecas unit is the other major world player.
Richard Aboulafia, an aerospace consultant with Teal Group, said
valuing CIT Aerospace may hinge on the fate of ILFC, given the
latter's size.
AIG's protracted talks with potential private-equity buyers have
seen the price tag shorn from a book value of around $7 billion to
less than $4 billion, according to people familiar with the
process.
CreditSights said the unit could realize around $5.3 billion
after repaying debt.
Royal Bank of Scotland PLC (RBS) has also canvassed buyers for
its RBS Aviation Capital business, according to leasing industry
sources, dropping an order for 25 Boeing 787s to avoid pre-delivery
payments and improve the marketability of the business.
Chinese banks have been active in boosting aircraft assets
during recent months, and bankers said listed leasing companies
such as Aircastle Ltd. (AYR), AerCap Holdings (AER) and Genesis
Lease Ltd. (GLS) may also seek opportunistic purchases of some
aircraft.
Any renewed effort by CIT to offload its rail business may run
into the buffers caused by overcapacity amid a sharp decline in
freight volume in the U.S. and Europe.
The company had a portfolio of 101,400 railcars as of March 31,
second only to GATX Corp. (GMT).CIT doesn't break down the rail
assets, but the book value of the fleet - alongside bus and other
non-aircraft transport equipment - was $2.73 billion at the end of
the first quarter. CreditSights valued the rail book at $2.3
billion after repaying debt.
Jeff Immelt, GE's chairman and chief executive, noted on an
earnings call last week that there are 5,400 locomotives parked
across the industry, a third of them owned by the U.S.
conglomerate. Well over 100,000 railcars, many of them leased, also
stand idle.
Burlington Northern Santa Corp. (BNI), Union Pacific Corp. (UNP)
and CSX Corp. (CSX) all lease some rail cars from CIT, but none is
voicing much concern on the unit's fate. "We have ample capacity in
terms of rolling stock," said a Burlingon spokesman.
-By Ann Keeton; Dow Jones Newswires;
312-750-4120;ann.keeton@dowjones.com (Doug Cameron and Bob Sechler
contributed to this article)