General Electric Co. nears more than $ 30 billion deal to combine aircraft leasing business with AerCap AER 1.62% Holdings NV, people familiar with the matter say, latest in a series of moves taken by the industrial conglomerate to restructure its once sprawling operations.
|GE||GENERAL ELECTRIC CO.||13.60||+0.03||+ 0.22%|
|AER||AERCAP HOLDINGS NV||50.80||+0.81||+ 1.62%|
|AIRPA||n / A||n / A||n / A||n / A|
|HON||HONEYWELL INTERNATIONAL, INC.||206.58||+3.64||+ 1.79%|
Although details of the structure of the deal could not be learned, it is expected to have a valuation of over $ 30 billion, some people have said. An announcement is expected on Monday, assuming the talks don’t collapse.
The 0.29% GE unit, known as GE Capital Aviation Services, or Gecas, is the largest remaining part of GE Capital, a once sprawling lending operation that rivaled the biggest US banks but has failed to sink the company during the 2008 financial crisis. GE has already taken a step back from lending activity in 2015 by announcing that it will be leaving most of GE Capital, and a deal with Gecas would represent another big step in that direction.
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It would also represent another important step on the part of GE CEO Larry Culp to turn around a company that has been battered in recent years by degraded prospects for some of its main lines of business and a structure that has fallen out of favor with investors.
With more than 1,600 aircraft owned or on order, Gecas is one of the largest jet leasing companies in the world, alongside AerCap and Los Angeles-based Air Lease Corp. It leases passenger aircraft manufactured by Boeing Co. and Airbus SE as well as regional jets. and cargo planes to customers ranging 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 an enterprise value – adjusted for debt and cash flow – of around $ 34 billion, according to S&P Capital IQ, and around 1,400 aircraft owned or ordered. The company has deal-making experience, having paid approximately $ 7.6 billion in 2014 to purchase International Lease Finance Corp. AerCap’s revenue last year was around $ 4.4 billion, up from around $ 5 billion in previous years.
The aviation sector has been hit hard by the Covid-19 pandemic, which has led to a sharp drop in global travel and prompted airlines to use planes on the ground. Some airlines have sought to defer lease payments or the purchase of new aircraft. Gecas recorded an operating loss of $ 786 million on sales of $ 3.95 billion in 2020. GE took an impairment of around $ 500 million on the value of its aircraft portfolio in the fourth quarter.
The business combination could provide opportunities for cost reduction and help the new entity weather the downturn.
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The separation of Gecas could help GE in its efforts to consolidate its balance sheet and improve its cash flow. Despite a recent increase, GE’s share price remains below what it was before major problems in the company’s power and finance units arose in recent years.
The Boston-based company has a market value of around $ 119 billion after shares more than doubled in the past six months as it posted improving results. Still, the stock has fallen about three-quarters from its peak just over 20 years ago.
Mr. Culp became the first CEO outside GE in late 2018 after the company was forced to cut its dividend and sell its business. The former boss of Danaher Corp. has sought to further simplify GE’s large conglomerate structure, as have other industrial giants such as Siemens AG and Honeywell International Inc. in recent years.
Activist investor Trian Fund Management LP, who has held a significant position in the company since 2015 and sits on its board of directors, has supported these changes.
Early in his tenure, Mr Culp said he had no plans to sell Gecas, a move his predecessor John Flannery considered after the unit attracted interest from private equity firms. who have moved more into the leasing industry.
Mr. Culp has sought to equalize cash flow and refocus on key areas. Transactions he parted with include the company’s biotech business, which was bought by Danaher in a $ 21 billion deal concluded last year. GE also sold its iconic light bulb business in a much smaller deal last year, and previously announced it was offloading its majority stake in oil services firm Baker Hughes Co.
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GE has reduced overheads and jobs in its jet engine unit while streamlining its electrical business. However, the pandemic continues to put pressure on the jet engine industry, GE’s largest division.
The company also manufactures healthcare machinery and power generation equipment, and the rest of GE Capital provides loans to help customers purchase its machines and also contains legacy insurance assets.
AerCap is based in Ireland and Gecas is also headquartered there. The aircraft rental industry has a long history 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 sector has become more competitive, however, as Chinese companies have gained market share, and the combination could help the new group to stem. this tide.
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Shares of aircraft leasing companies fell with much of the market in the early days of the pandemic, as demand from major airlines, which lease planes to avoid cost of ownership, evaporated. But many of the actions of major donors have recovered lost ground, and then some in the months since, as lockdowns ease and travel prospects improve.
AerCap CEO Aengus Kelly said in his fourth quarter earnings call this month that he expects airlines to turn more to aircraft leasing as they move forward. rebuild their balance sheets, which would be a boon for the company and its peers.
“Their appetite for deploying large amounts of scarce capital to purchase aircraft will remain muted for some time,” he said. “The priority will be to repay the debt or government grants.”
–Thomas Gryta contributed to this article.