By Cara Lombardo and Emily Glazer
General Electric Co. is nearing a $30 billion-plus deal to
combine its aircraft-leasing business with Ireland's AerCap
Holdings NV, according to people familiar with the matter, the
latest in a string of moves by the industrial conglomerate to
restructure its once-sprawling operations.
Though details of how the deal would be structured couldn't be
learned, it is expected to have a valuation of more than $30
billion, some of the people said. An announcement is expected
Monday, assuming the talks don't fall apart.
The GE unit, known as GE Capital Aviation Services, or Gecas, is
the biggest remaining piece of GE Capital, a once-sprawling lending
operation that rivaled the biggest U.S. banks but nearly sank the
company during the 2008 financial crisis. GE already took a major
step back from the lending business in 2015 when it said it would
exit the bulk of GE Capital, and a deal for Gecas would represent
another big move in that direction.
It would also represent another significant move by GE Chief
Executive Larry Culp to right the course of a company that has been
battered in recent years by souring prospects for some of its top
business lines 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 world's biggest jet-leasing companies, alongside AerCap and Los
Angeles-based Air Lease Corp. It leases passenger aircraft made 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 Dec. 31.
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 around 1,400 owned or ordered
aircraft. The company has experience in deal making, paying around
$7.6 billion in 2014 to buy International Lease Finance Corp.
AerCap's revenue last year was about $4.4 billion, down from around
$5 billion in the previous few years.
The aviation business has been hit hard by the Covid-19
pandemic, which has resulted in a sharp drop in global travel and
prompted airlines to ground planes. Some airlines have sought to
defer lease payments or purchases of new aircraft. Gecas had an
operating loss of $786 million on revenue of $3.95 billion in 2020.
GE took a roughly $500 million write-down on the value of its
aircraft portfolio in the fourth quarter.
Combining the companies could afford cost-cutting opportunities
and help the new entity weather the downturn.
Separating Gecas could help GE with its efforts to shore up its
balance sheet and improve cash flows. Despite a recent increase,
GE's share price remains below where it was before significant
problems in the company's power and finance units emerged in recent
years.
The Boston company has a market value of around $119 billion
after the shares more than doubled in the past six months as it
posted improving results. Still, the stock has fallen by about
three-quarters from the peak just over 20 years ago.
Mr. Culp became the first CEO from outside of GE in late 2018
after the company was forced to slash its dividend and sell off
businesses. The former Danaher Corp. boss has sought to simplify
GE's wide-ranging conglomerate structure further, as other
industrial giants such as Siemens AG and Honeywell International
Inc. have done in recent years.
Activist investor Trian Fund Management LP, which has owned a
significant position in the company since 2015 and holds a seat on
its board, has supported such changes.
Early in his tenure, Mr. Culp said he had no plans to sell
Gecas, a move his predecessor John Flannery had considered after
the unit drew interest from private-equity firms pushing further
into the leasing business.
Mr. Culp has sought to even out cash flows and refocus on core
areas. Operations he has parted with include the company's biotech
business, which was purchased by Danaher in a $21 billion deal that
closed last year. GE also sold its iconic lightbulb business in a
much smaller deal last year, and previously said it was unloading
its majority stake in oil-field-services firm Baker Hughes Co.
GE has cut overhead costs and jobs in its jet-engine unit while
streamlining its power business. The pandemic continues to pressure
the jet-engine business, GE's largest division, however.
The company also makes healthcare machines and power-generating
equipment, and the rest of GE Capital extends loans to help
customers purchase its machines and contains legacy insurance
assets too.
AerCap is based in Ireland and Gecas has headquarters there as
well. 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 reunite two companies
that bought their main assets from GPA.) The industry has gotten
more competitive as Chinese companies have gained market share,
however, and the combination could help the new group stem that
tide.
Shares in aircraft-leasing companies plummeted along with much
of the market in the early days of the pandemic as demand from
major airlines, who lease planes to avoid the costs of owning them,
evaporated. But many of the major lessors' stocks have recovered
lost ground and then some in the months since as lockdowns ease and
the outlook for travel improves.
AerCap's Chief Executive Aengus Kelly said on its fourth-quarter
earnings call this month that he expects airlines to shift more
toward leasing planes as they rebuild their balance sheets, in what
would be a boon to the company and its peers.
"Their appetite for deploying large amounts of scarce capital to
aircraft purchases will remain muted for some time," he said. "The
priority will be to repay debt or government subsidies."
Write to Cara Lombardo at cara.lombardo@wsj.com and Emily Glazer
at emily.glazer@wsj.com
(END) Dow Jones Newswires
March 07, 2021 18:19 ET (23:19 GMT)
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