Macquarie in Talks to Acquire Kuwaiti Lessor Alafco

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(Bloomberg) -- Australia’s Macquarie Group Ltd. is in talks about a potential acquisition of Kuwaiti plane leasing firm Alafco Aviation Lease & Finance Co., according to people with knowledge of the matter. Alafco climbed.

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Macquarie’s aircraft financing arm is aiming to reach an agreement within as soon as the next few weeks, the people said, asking not to be identified because the information is private. Alafco, which is backed by the Kuwaiti government, has also drawn interest from other suitors, the people said.

Shares of Alafco rose as much as 6.6%, the most since late May, on Thursday, giving the company a market value of about $600 million. The shares have fallen 13% in Kuwait trading this year.

Aircraft lessors have turned to dealmaking to gain scale, in part because airlines are seeking finance plane purchases without risking their own balance sheets. Leasing titans AerCap Holdings NV and General Electric Co. combined their operations last year in a bet the aviation industry was poised to rebound. In May, SMBC Aviation Capital agreed to buy Goshawk Aviation for $6.7 billion including debt.

Alafco had a portfolio of 77 aircraft, with another 68 on order at the end of March. It has lease agreements with carriers including Aegean, Malaysia Airlines and SAS. The company’s biggest shareholders are Kuwait Finance House KSCP, Gulf Investment Corp. and Kuwait Airways Co., according to data compiled by Bloomberg.

There’s no certainty the discussions will lead to an agreement, and another buyer could still emerge, the people said. Spokespeople for Macquarie and Kuwait Airways declined to comment, while representatives for Alafco and GIC didn’t immediately respond to requests for comment.

Kuwait Finance House in a statement on Thursday denied a potential acquisition of its stake in Alafco by Macquarie.

Alafco’s net loss widened in the six months through March 31 to 4.5 million dinar ($14.7 million). Its operating lease income fell 2% to 51 million dinar.

Macquarie’s AirFinance affiliate is led by Chief Executive Officer Eamonn Bane. Founded in 2006, it’s owned by Macquarie Asset Management, PGGM Infrastructure Fund and an Australian pension manager. It currently owns or has commitments or options for 253 jet aircraft which it’s leased to 83 operators, its website shows.

(Updates with Alafco shares in third paragraph, and KFH denial in seventh.)

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