General Electric Co. brings together a deal worth more than $ 30 billion to combine its aircraft leasing business with Ireland’s AerCap AER 1.62% Holdings NV, according to insiders, the latest in a series of industrial conglomerate actions to restructure once-stretched operations.
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|SHE||HONEYWELL INTERNATIONAL, INC.||206.58||+3.64||+ 1.79%|
Although details on how the deal will be structured cannot be learned, it is expected to have an estimate of more than $ 30 billion, some people said. A statement is expected on Monday if talks do not fall apart.
GE GE The 0.29% unit, known as GE Capital Aviation Services or Gecas, is the largest remaining piece of GE Capital, a once-stretched lending operation that competes with major US banks but nearly sank the company at the time. of the financial crisis in 2008, GE had already taken a big step back from the credit business in 2015, when it said it would exit most of GE Capital, and the Gecas deal would be another big move in that direction.
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This would also be another important move by GE CEO Larry Culp to adjust the course of a company that has been broken in recent years, looking for prospects for some of its best business lines and a structure that is not in favor. of investors.
With more than 1,600 aircraft, owned or commissioned, Gecas is one of the world’s largest jet leasing companies, along with AerCap and Los Angeles-based Air Lease Corp. Rents passenger planes manufactured by Boeing Co. and Airbus SE, as well as regional aircraft. and cargo planes for customers ranging from leading airlines to startups. As of December 31, Gecas has assets of $ 35.86 billion.
AerCap has a market value of $ 6.5 billion and an enterprise value adjusted for debt and cash of about $ 34 billion, according to S&P Capital IQ, and about 1,400 aircraft owned or ordered. The company has experience in making deals, paying about $ 7.6 billion in 2014 to buy International Lease Finance Corp. AerCap’s revenue last year was about $ 4.4 billion, compared to about $ 5 billion in the previous few years.
The aviation business was hit hard by the Covid-19 pandemic, which led to a sharp drop in global travel and pushed airlines to land planes. Some airlines are seeking to defer lease payments or purchases of new aircraft. In 2020, Gecas had an operating loss of $ 786 million with revenue of $ 3.95 billion. In the fourth quarter, GE wrote off approximately $ 500 million worth of its aircraft portfolio.
Combining companies can afford cost-cutting opportunities and help the new organization overcome the downturn.
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The separation of Gecas can help GE with its efforts to strengthen its balance sheet and improve cash flow. Despite the recent increase, GE’s share price remains lower than it was before significant problems arose in the company’s energy and financial departments in recent years.
The Boston-based company has a market value of about $ 119 billion after shares more than doubled in the past six months as they performed better. However, the stock has fallen by about three-quarters from the top a little over 20 years ago.
Mr. Culp became the first CEO outside of GE in late 2018 after the company was forced to cut its dividend and sell the business. The former boss of Danaher Corp. tried to further simplify GE’s extensive conglomerate structure, as did other industrial giants such as Siemens AG and Honeywell International Inc. in the past years.
Investor activist Trian Fund Management LP, who has held a significant position in the company since 2015 and has a seat on the board, supported such changes.
At the start of his term, Mr Culp said he had no plans to sell Gecas, a move his predecessor, John Flannery, had considered after the unit attracted interest from private companies that continue to operate in the leasing business.
Mr. Culp seeks to equalize cash flows and focus on key areas. The operations he parted ways with include the company’s biotechnology business, bought by Danaher in a $ 21 billion deal that ended last year. GE also sold its iconic light bulb business with a much smaller deal last year and previously said it was unloading its majority stake in oil company Baker Hughes Co.
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GE has reduced overhead costs and jobs in its jet engine while streamlining its energy business. However, the pandemic continues to put pressure on the jet engine business, GE’s largest division.
The company also manufactures healthcare and energy generation equipment, and the rest of GE Capital lends to help customers purchase its machinery and also contains inherited insurance assets.
AerCap is based in Ireland, and Gecas is also based there. The leasing industry has long had a significant presence in Ireland due to the favorable tax regime in the country and the importance of Guinness Peat Aviation for the development of the sector. (The deal between GE and AerCap will bring together two companies that bought their core assets from GPA.) The industry has become more competitive as Chinese companies have gained market share and the combination could help the new group overcome the tide.
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Shares in aircraft leasing companies collapsed along with much of the market in the early days of the pandemic as demand from major airlines that lease aircraft evades the cost of owning them. But many of the major lessors’ stocks have recovered, lost positions, and then some of the months since, as the blockade has eased and travel prospects have improved.
AerCap CEO Aengus Kelly said in a call for fourth-quarter earnings this month that he expects airlines to focus more on leasing aircraft as they rebalance, which would be a boon for the company and its peers.
“Their appetite for large amounts of scarce capital to buy planes will remain muffled for some time,” he said. “The priority will be to pay off debt or government subsidies.”
–Thomas Grita contributed to this article.