NEW YORK (TheStreet) --There was very big news Monday in the very small niche of aircraft leasing when Aer Cap Holdings (AER) bought AIG's (AIG) 100% interest in International Lease Finance Corporation for $3 billion in cash and 97 million AER shares, giving AIG a 46% stake in AER. The market responded very favorably to the transaction, sending AER's shares up 31%.
AER went public in late 2006 very close to the public debuts of Air Castle Limited (AYR) and Fly Leasing Limited (FLY). The general idea for AYR and FLY is that they would pay dividends from their leasing operations however AER has not paid any dividends since it first started trading.
The initial dividend yields from AYR and FLY were expected to be in the 6-7% range, and that yield potential was part of the marketing for the 'then-new' IPOs.
Shortly after all three started trading, the financial crisis hit sent them spiraling down to losses ranging from 86-91%. Although they have come back some, they are all still down 45-70% from their pre-crisis highs.
The reason for the shocking declines is, as it turned out, their business models are very transaction-oriented -- relying heavily on accessing capital markets for debt financing when they buying more planes. Any planes they sell require buyers to be able to find their own financing. Of course, debt markets completely seized up for a short while and did not function normally for a long while, and arguably debt markets are still not functioning as they did before the crisis.