CIT puts aviation leasing on runway

CIT Group has unveiled its strategy to achieve a 10% return on tangible common equity (ROTCE) by 2018, with plans to drive down operating costs and dispose of its aircraft leasing business.

Ellen Alemany, incoming chair and CEO of CIT Group and CEO and president of CIT Bank, said: “CIT announces steps to focus on our core businesses, improve our financial performance and transition our strategy to become a national middle market bank serving our customers with an integrated set of financing and deposit products.”

As part of the transition, CIT says it will focusing on its core commercial businesses, which include commercial lending, leasing (including rail), and depository solutions for middle market customers. The group has also indicated it wants to complete the integration of OneWest bank, acquired for $3.2 billion in mid-2015, by year end.

Commercial air

CIT has formally announced plans to dispose of its commercial air business by the end of 2016, something which the company has been trying to do since autumn of last year.

CIT’s portfolio is heavily weighted towards the North American market with a big exposure to American and Delta. The current book average age is six years old but that is due to fall rapidly as the $11 billion delivery stream of Neo/Max/A350 and 787 aircraft gathers pace over the remainder of the decade.

Commentators have suggested that its operations could prove highly attractive to Chinese companies, as it offers very good access to US markets, coupled with access to the latest widebody aircraft deliveries.

When a disposal was mooted last year, early indications suggested the sale of CIT’s aircraft leasing arm could raise anything between $2.5 billion and $3.2 billion, although other options could include a merger with another lessor or a spin-off deal.

However, Bloomberg has recently quoted analysts as saying: “From the outside, it seems like the preparation work to sell or spin off the commercial aircraft leasing business is taking a lot of time.”

Cost cutting

As well as withdrawing directly from aircraft leasing, CIT says it plans to reduce operating expenses by $125 million by 2018; improve funding costs by growing its deposit base and transitioning the deposit mix to lower cost deposits; efficiently realize substantial cash flow and capital from deferred tax assets; and return excess capital to shareholders, subject to regulatory approvals.

Alemany concluded: “With our recent actions and the decisions we are announcing, we are strengthening our culture of ownership, accountability and transparency at CIT. Our strategic plan of focusing on our core businesses and leveraging the strength of our franchises and risk management practices will maximize value for shareholders and position CIT as a leading national middle market bank.”