Exclusive: American Airlines cuts debt by $2.8 billion

(Reuters) – American Airlines said on Wednesday it had reduced its outstanding debt by $2.8 billion after repaying loans under various revolving credit facilities.

Please reload the page later for more. Thanks!

AerCap to acquire General Electric’s aircraft-leasing unit – $30 billion deal

The world’s two largest aircraft leasing companies are combining to create a new financing giant after Ireland’s AerCap finalised a deal worth more than $30 billion to buy the leasing unit of General Electric.

The two companies, which tied the knot on Wednesday after days of speculation surrounding a takeover of GE’s leasing arm GECAS, together control more than 2,000 jets, dwarfing rivals.

The tie-up creates easily the largest buyer of jetliners built by planemakers Airbus and Boeing and will reshape a global air finance industry that has attracted a flood of capital in recent years as investors look for higher returns.

Shares in both New York-listed companies fell about 6% on Wednesday as AerCap prepared to issue new stock to help finance the transaction and GE disappointed expectations of some investors that it would raise its cash outlook.

The deal comes as the independence of several leasing firms has been brought into question by the coronavirus crisis and could trigger further consolidation, analysts say.

It is the latest move by GE Chief Executive Larry Culp to reduce debt and focus the conglomerate on its industrial core of power, renewable energy, aviation and healthcare.

Culp took the reins of the struggling conglomerate in 2018, months after the 129-year-old company dropped out of Wall Street’s blue-chip index following years of dwindling profits.

“This deal marks a real transformation of GE into a more focused, simpler and stronger industrial company,” Culp said.

AerCap Chief Executive Aengus Kelly said the Dublin-based company had acquired its rival for an “attractive” discount to its book value in its second defining transaction in almost a decade, after purchasing U.S.-based ILFC in 2014.

Both deals saw AerCap pounce on solid business rivals whose owners were suffering due to a wider financial crisis. In both cases, the owners took up offers of stakes in the larger AerCap in return for ceding control, betting on an industry recovery.

‘FLEXIBILITY’

“This is not about scale or getting bigger for the sake of it,” Kelly told analysts.

The deal to buy GECAS, or GE Capital Aviation Services, includes about $24 billion in cash and $1 billion paid in AerCap notes or cash. It includes 111 million new shares, giving GE a stake of 46% in the AerCap-controlled company.

“We have the flexibility to monetise the stake as the aviation industry recovers,” Culp told analysts.

The deal values GECAS at just over $31 billion based on closing AerCap share prices on Tuesday.

GE said it planned to reduce debt by about $30 billion using transaction proceeds and existing cash, but announced a $3 billion writedown in connection with the deal.

The deal, which includes the transfer of about 300 helicopters, is expected to close in the fourth quarter of 2021.

Citi and Goldman Sachs have provided AerCap with $24 billion of committed financing for the transaction.

AerCap said the deal would raise its debt to 3.0 times equity but this adjusted ratio would return “rapidly” to a targeted level of 2.7.

Analysts have said the scale of the combined entity, controlling about three times the number of aircraft as its nearest competitor, Dublin-based Avolon, could force AerCap to offload aircraft to meet anti-trust requirements.

The new group will have a mainly Airbus fleet but Kelly expressed support for the troubled Boeing 737 MAX, recently restored to service after an almost two-year safety grounding.

“I wouldn’t bet against Boeing,” he said..

Analysts have said the deal would give the combined group greater bargaining power when buying jets.

Boeing declined comment on the merger. Airbus said it would maintain the good relations it has had with AerCap and GECAS.

Indonesia Sriwijaya Air Boeing 737 black boxes located

Black boxes of a passenger plane which crashed in the sea soon after take-off from Jakarta, Indonesia on Saturday have been located, officials say.

A small flotilla of ships has been searching the site and navy divers should soon be able to retrieve the two flight recorders, they add.

Aircraft parts and human remains have been found.

The Sriwijaya Air Boeing 737 was carrying 62 people when it vanished from radar on its journey to Borneo.

“We have located the position of the black boxes, both of them,” said Soerjanto Tjahjono, head of Indonesia’s transport safety committee, quoted by AFP.

“Divers will start looking for them now and hopefully it won’t be long before we get them.”

Investigators are analysing items which they believe to be a wheel and part of the plane’s fuselage.

BBC South-East Asia correspondent Jonathan Head says the sea in this part of Indonesia is relatively shallow and the bad weather which had been hampering rescue operations has now improved, making it more likely significant parts can be recovered.

However, the search appears to offer no hope of finding any survivors.

A view of debris found in the waters off Jakarta suspected to belong to the missing Sriwijaya Air flight SJ182
image captionDebris believed to belong to the Sriwijaya Air flight that disappeared shortly after take-off from Jakarta

A spokesman for the Jakarta police, Yusri Yunus, said two bags had been received from the search and rescue agency.

“The first bag contained passengers’ properties, another bag contained body parts,” he told reporters, adding: “We are still identifying these findings.”

Indonesian search and rescue officers inspect a bag with wreckage believed to be of the missing Sriwijaya Air plane, at Tanjung Priok port in Jakarta, Indonesia, 10 January 2021
image captionIndonesian investigators inspect an item they believe could belong to the missing plane

Search and rescue efforts were suspended overnight but resumed early on Sunday. Four planes have also been deployed to help with the search.

Ships pictured during a search for the Sriwijaya Air flight SJ-182 near Jakarta, Indonesia
image captionTeams of divers have been deployed to the area believed to be the site of the crash

The missing aircraft is not a 737 Max, the Boeing model that was grounded from March 2019 until last December following two deadly crashes.

What happened to the aircraft?

The Sriwijaya Air passenger plane departed from Jakarta airport at 14:36 local time (07:36 GMT) on Saturday.

Minutes later, at 14:40, the last contact with the plane was recorded, with the call sign SJY182, according to the transport ministry.

The usual flight time to Pontianak, in West Kalimantan province in the west of the island of Borneo, is 90 minutes.

The aircraft did not send a distress signal, according to the head of national search and rescue agency Air Marshal Bagus Puruhito.

It is thought to have dropped more than 3,000m (10,000ft) in less than a minute, according to flight tracking website Flightradar24.com.

Witnesses said they had seen and heard at least one explosion.

Indonesia map

Who was on board the flight?

There were thought to be 50 passengers – including seven children and three babies – and 12 crew on board, though the plane has a capacity of 130. Everyone on board was Indonesian, officials say.

Relatives of the passengers have been waiting anxiously at the airport in Pontianak, as well as at Jakarta’s Soekarno-Hatta International Airport.

Family members of Sriwijaya Air plane passengers wait for news at Pontianak airport, Indonesia 9 January 2021
image captionFamily members of missing passengers wait for news at Pontianak airport, Indonesia

“I have four family members on the flight – my wife and my three children,” Yaman Zai told reporters through tears.

“[My wife] sent me a picture of the baby today… How could my heart not be torn into pieces?”

What do we know about the plane?

According to registration details, the plane was a 26-year-old Boeing 737-500.

It was in good condition, Sriwijaya Air chief executive Jefferson Irwin Jauwena told reporters. Take-off had been delayed for 30 minutes due to heavy rain, he said. 

Sriwijaya Air, founded in 2003, is a local budget airline which flies to Indonesian and other South-East Asian destinations. 

The plane that is believed crashed, the Sriwijaya Air flight 182 (registration PK-CLC) PK-CLC
image captionThe Sriwijaya Air plane disappeared from radar screens shortly after take-off (file photo)

The plane went missing about 20km (12 miles) north of the capital Jakarta, not far from where another flight crashed in October 2018. 

A total of 189 died when an Indonesian Lion Air flight plunged into the sea about 12 minutes after take-off from the city.

That disaster was blamed on a series of failures in the plane’s design, but also faults by the airline and the pilots.

It was one of two crashes that led regulators to pull the Boeing 737 Max from service. The model resumed passenger flights in December after a systems overhaul.

The BBC’s Jerome Wirawan in Jakarta says the latest events will bring up difficult questions and emotions in Indonesia, whose airline industry has faced intense scrutiny since the Lion Air crash.

New aircraft spy opportunities amid aerospace woes

Michael Cervenka traces his interest in engineering back to his grandfather’s influence.

“He was an organ builder and had me sorting out screws on his workshop floor when I was 18 months old,” he says.

That interest literally took off. He is now the boss of Bristol-based Vertical Aerospace, and has progressed to electric vertical take-off and landing (eVTOL) machines. 

With the potential to be quiet and economical, these aircraft have been touted as the next big thing in passenger aircraft.

Vertical is working on the VA-1X, an aircraft intended to fly between regions. That regional emphasis matters as eVTOL machines have often been promoted as air taxis, whizzing around our cities under the banner of “urban air mobility” (UAM). 

Michael Cervenka, chief executive, Vertical Aerospace
image captionMichael Cervenka says pilot-free aircraft are a long way off

Some even suggest these vehicles could scoop up passengers and whisk them along pre-arranged flight corridors without a pilot. 

Vertical dismisses this as a fantasy. “Our aircraft will be heavily automated,” says Mr Cervenka. “But both regulations and the public will require a pilot for years to come.”

An automatic response to an obstruction on a landing pad below will pull VA-1X up and away from a collision, but people still want to see a highly trained aviator in charge of their flight.

Using multiple propellers that point skywards for take-off and then rotate to tilt forward to fly horizontally, the VA-1X aims to carry four passengers and a pilot over short distances more cheaply than a helicopter. 

Seraph from Vertical Aerospace
image captionMultiple rotors are a safety feature on many eVTOL aircraft

Airlines operate within a framework of strict regulation, so how will this entirely new category of machine pass the scrutiny of international safety bodies? Mr Cervenka says he is working closely with UK and European regulators. 

The technology behind VA-1X has been tested at a remote airfield in Wales using a prototype called Seraph. This is a piloted black box surrounded by six arms mounting rotor blades. 

Seraph’s chunky appearance belies its role in proving the systems that should keep VA-1X’s eight electric motors pointing in the right direction. And if a motor fails Seraph can still hover and land. 

Presentational grey line

With a winged design, as opposed to some of the wingless flying car proposals in the eVTOL world, Vertical’s VA-1X gains lift. So the wings take pressure off its electric power source, which is derived from a car battery. Vertical employs 25 ex-Formula 1 engineers and a battery engineer from Jaguar Land Rover. 

Lilium engineer
image captionElectric motors are simpler and quieter than engines on helicopters or jet aircraft

The company claims its aircraft will be 30 times quieter than a helicopter. So in theory it should be able to make more use of existing heliports where the frequency of landings is restricted by noise regulations. 

It spies a market for travel between locations not served by high-speed rail networks and regional airlines. Regional connectivity is the name of this game. 

“We will offer an ability to connect places that are not well connected today,” says Mr Cervenka, who is eyeing up a London-to-Brighton service, a route notorious for rail delays and traffic jams. 

Covid has slashed airline passenger numbers. So Mr Cervenka reckons new purchases of large airliners are off the menu. But airlines might use eVTOL flights from a major airport into the centre of a city to attract business or first-class flyers as part of their fare. 

The 150mph (240km/h) VA-1X will need a full battery recharge every 100 miles, but a 25-mile short hop from an airport to city centre would allow for a fast recharge and quick turnaround.

David Tait, a lawyer studying emerging technologies for the UK’s Civil Aviation Authority, says he expects eVTOL craft to gain regulatory approval for certain services – but he also pours cold water on the wilder promises of flying taxis.

“Consumer on-demand services are a long way away,” he says, citing the air traffic management challenges of putting too many machines into the air above a major city.

Designs such as the octo-engined VA-1X have no single point of failure, unlike a helicopter where the loss of rotor blades or power can be catastrophic.

“Our view is that eVTOL should be at least as safe as existing vehicles,” Mr Tait says. “Our expectation is that these will be quieter, cleaner and safer.”

Lilium aircraft in the workshop
image captionLilium has attracted engineers from Boeing and Airbus

Approximately 300 eVTOL projects are under way around the globe and Germany’s Lilium is one of the most advanced, attracting engineers from Boeing and Airbus.

Its distinctive eVTOL machine has 36 electric engines buried inside slender white wings and tail planes. These are ducted fans, sucking in air and blowing it out in the manner of a jet engine but without mixing it up with fuel. This mass of fans creates a strong current that will push the little five-seater jet to 300km/h (186mph) and give the pilot control over direction. 

Remo Gerber, its operational chief, says that despite this radical design Lilium is “following a classic aviation approach”, with safety dictating design features such as the Kevlar shell around the fan blades, ensuring that if a blade flies off it will be contained within the tough material. 

A technology demonstrator flew at its base outside Munich in 2019 and the larger production machine is intended to carry four passengers and a pilot like the VA-1X. These light passenger loads reflect the power limitations of electric motors.

Mr Gerber shares the view that UAM has been oversold: “We struggle with UAM. We don’t see the benefits.” He argues that very short distances make no sense for eVTOL because the final section of the trip still has to be made by road – Lilium is also focussing on the regional transport market. 

Artist illustration of Lilium EVTOL aircraft
image captionLilium is betting on longer-range regional connections

Lilium plans a regional network based around Dusseldorf and Cologne airports in Germany’s densely populated North Rhine-Westphalia area. The idea is to connect smaller cities such as Aachen and Munster to the airports via Lilium aircraft by 2025. 

It is also designing eVTOL airports – what it calls “vertiports”. With a relatively small footprint these present an affordable alternative to airports and railway stations. These could link up a region with hundreds of daily flights, and multiple high-frequency flights from different locations would carry more passengers than rival first-class rail services at equivalent fares. 

Back at Vertical, manufacturing will see components such as the VA-1X’s cockpit displays arriving to be integrated in a final assembly. So Mr Cervenka’s very early experience putting many parts of a machine together may still pay dividends.

By: Michael Dempsey
Technology of Business