CIT sells its commercial aircraft rental unit to Avolon

CIT Group Inc.

CIT -3.40%

has agreed to sell its commercial flight rental business to the Avolon unit of Chinese conglomerate HNA Group for around $ 4 billion.

The cash deal was announced Thursday and is a milestone for CIT, a lender that has struggled in recent years. After decades as a financier specializing in niche loans like aircraft leasing, CIT is trying to remake itself – and improve returns for shareholders – by divesting assets and becoming a regular bank.

The deal means a potentially significant salary for shareholders: CIT said it plans to return nearly $ 3 billion to shareholders from the sale with the potential for some more. He said the Federal Reserve Bank of New York had given the capital return plan a “no objection.” CIT shares rose about 10% in after-hours trading.

The deal stems from a change in strategy at CIT that dates back to the financial crisis, when the company became a bank holding company and then filed for bankruptcy.

CIT found that the airline business, which buys and leases planes, was ill-suited to be part of a regulated bank. For example, CIT has had to hold capital both in the aircraft it owns and in its new aircraft order book. Chinese buyers, on the other hand, do not face the same constraints and are enthusiastically embracing leasing as travelers from the country move abroad.

Chinese conglomerate HNA Group joined the top 10 global aircraft leasing operations last year with its $ 2.6 billion acquisition of Irish company Avolon. Acquiring the CIT business would place it in the top three with a fleet of over 600 owned and operated jets, behind just one unit of General Electric. Co.

and AerCap Holdings NV.

State banks, including the Bank of China Ltd.

already have large jet portfolios, and others are trying to carve out a niche in the company.

The deal would more than double the size of Avolon and place it among the world’s elite of leasing companies that already own more than 40% of the world’s passenger and freight planes.

Dómhnal Slattery, CEO of Avolon, said in an interview that his goal is to make Avolon the world’s leading aircraft rental company. “This is not the peak of our ambition,” he said Thursday. “This is clearly a very important step on the way. “

Write to Rachel Louise Ensign at [email protected] and Julie Steinberg at [email protected]

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