GE Nears Deal to combine the aircraft leasing unit with AerCap

GE GE 0.29%

, known as GE Capital Aviation Services or Gecas, is the largest remaining piece of GE Capital, a lending operation that rivaled the largest US banks, but nearly sank the company during the 2008 financial crisis. has already taken an important step back from lending in 2015, when it said it would leave most of GE Capital, and a deal for Gecas would be another major move in that direction.

It would also be another significant move by GE CEO Larry Culp to steer the course of a company that has been hit in recent years by prospects for some of its core business lines and a structure that has fallen out of favor. investors.

With more than 1,600 aircraft owned or commissioned, Gecas is one of the largest leasing companies in the world, along with AerCap and Air Lease Corp. in Los Angeles. Rent passenger planes manufactured by Boeing Co. and Airbus SE, as well as regional aircraft. and cargo planes to customers, from flagship airlines to startups. Gecas had $ 35.86 billion in assets as of December 31.

AerCap has a market value of $ 6.5 billion and a business value – adjusted for debt and cash – of approximately $ 34 billion, according to S&P Capital IQ, and approximately 1,400 aircraft owned or ordered. The company has experience in transactions, paying approximately $ 7.6 billion in 2014 to buy International Lease Finance Corp. AerCap’s revenue last year was about $ 4.4 billion, down from about $ 5 billion in recent years.

The aviation business has been hit hard by the Covid-19 pandemic, which has resulted in a sharp drop in global travel and caused airlines to reach ground planes. Some airlines have tried to postpone leasing payments or purchases of new aircraft. Gecas had an operating loss of $ 786 million on revenue of $ 3.95 billion in 2020. GE saw a reduction in the value of its aircraft portfolio of approximately $ 500 million in the fourth quarter.

The combination of companies could allow for cost-cutting opportunities and help the new entity cope with the recession.

The separation of Gecas could help GE in its efforts to strengthen its balance sheet and improve cash flows. Despite a recent increase, GE’s share price remains below where significant problems have occurred in the company’s power and finance units in recent years.

The Boston-based company has a market value of about $ 119 billion, after shares doubled in the past six months as it recorded improved results. However, the stock fell about three-quarters from its peak just over 20 years ago.

Culp became the first CEO outside GE at the end of 2018, after the company was forced to cut its dividends and sell business. Former Danaher Body.

the boss tried to further simplify GE’s large-scale conglomerate structure, as did other industrial giants such as Siemens AG and Honeywell International Inc.

they have done in recent years.

Activist investor Trian Fund Management LP, which has held a significant position in the company since 2015 and holds a seat on its board of directors, has supported such changes.

Earlier in his term, Mr Culp said he did not intend to sell Gecas, an action his predecessor, John Flannery, took into account after the unit attracted the interest of private equity firms that moved on to leasing activity.

Mr Culp tried to standardize cash flows and focus on key areas. The divergent operations include the company’s biotechnology business, which was acquired by Danaher in a $ 21 billion deal that ended last year. GE also sold its iconic light bulb business to a much smaller business last year and previously said it is unloading its majority stake in Baker Hughes Co.

GE has reduced overhead costs and jobs in its jet engine unit, while streamlining its energy business. However, the pandemic continues to put pressure on the jet engine business, GE’s largest division.

The company also produces health care machines and power generation equipment, and the rest of GE Capital provides loans to help customers purchase their cars and also contains old insurance assets.

AerCap is headquartered in Ireland and Gecas is headquartered there. The aircraft leasing industry has long had a significant presence in Ireland due to the country’s favorable tax regime and the importance of Guinness Peat Aviation in the development of the sector. (A deal between GE and AerCap would bring together two companies that bought their main assets from GPA.) The industry has become more competitive as Chinese companies have gained market share, however, and the combination could help the new group stop this. tide.

Shares of aircraft leasing companies fell along with much of the market in the early days of the pandemic, as demand from large airlines, which lease aircraft to avoid the costs of owning them, evaporated. But many of the actions of large landlords have regained lost ground and then some in the coming months, as blockages ease and travel prospects improve.

AerCap CEO Aengus Kelly said in the month of his earnings submission that he expects airlines to focus more on aircraft leasing as they rebuild their balance sheets, which would be to the company’s advantage. his colleagues.

“Their desire to implement large amounts of rare capital in aircraft purchases will remain off for a period of time,” he said. “The priority will be to repay government debts or subsidies.”

—Thomas Gryta contributed to this article.

Write to Cara Lombardo at [email protected] and Emily Glazer at [email protected]