By Thomas Gryta, Cara Lombardo and Emily Glazer
General Electric Co. agreed to combine its aircraft-leasing
business with Ireland's AerCap Holdings NV in a deal valued at more
than $30 billion and wind down its GE Capital financing
business.
The Wall Street Journal reported news of the deal on Sunday.
GE will get about $24 billion in cash and 46% ownership in the
new merged company. It transfer about $34 billion in net assets to
AerCap along with more than 400 workers. The deal is expected to
close in 9 to 12 months
The GE unit, known as GE Capital Aviation Services, or Gecas, is
the largest remaining piece of GE Capital, a lending arm that
rivaled the biggest U.S. banks but nearly sank the company during
the 2008-09 financial crisis. GE already took a major step back
from the lending business in 2015, when it said it would exit from
the bulk of GE Capital, and a deal for Gecas represents another big
move in that direction.
The deal represents another significant action by GE Chief
Executive Officer 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 by 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 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 $123 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 in late 2018 became the first CEO from outside GE 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 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 because of the country's favorable tax regime
and the importance of Guinness Peat Aviation in the development of
the sector. (A completed deal between GE and AerCap would reunite
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 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, which 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 Chief Executive Aengus Kelly said on the company's
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."
Thomas Gryta contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com, Cara Lombardo at
cara.lombardo@wsj.com and Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
March 10, 2021 06:51 ET (11:51 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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