Bloomberg
GE sells jet car in $ 30 billion deal to reduce risk and size
(Bloomberg) – General Electric Co. has agreed to sell its jet leasing business to rival AerCap Holdings NV, bringing together the world’s two largest aircraft lenders in a deal that is expected to reshape a market already agitated by the coronavirus pandemic. , valued at more than $ 30 billion, GE will receive $ 24 billion in cash plus 111.5 million shares, equivalent to 46% of the combined entity’s capital, according to a statement on Wednesday. GE will receive an additional $ 1 billion from AerCap in cash or debt when the transaction is closed. The association gives rise to a gigantic lessor after a year in which the pandemic hit aviation and prompted airlines around the world to cancel jet orders and delay deliveries and postpone lease payments. The deal also signals the end of GE Capital, the company’s once powerful financial unit, the remainder of which will be incorporated into the broader corporate balance sheet. The effect will be to “lower the risk” of the company, said GE CEO Larry Culp. “This marks the transformation of GE into a much more focused, simpler and stronger company,” Culp said in an interview. “This will give us the opportunity to fully focus on our four industrial businesses.” GE fell 6.4% to $ 13.11 at 9:52 am in New York, after dropping up to 6.9% for the biggest intraday drop in five months. The company also reiterated its 2021 earnings forecast, which fell short of Wall Street expectations. AerCap plunged 8.1% to $ 51.45. For AerCap, the deal positions the company for a recovery in the sector, as expanding vaccination campaigns drive people to fly again after last year’s unprecedented drop in travel demand. With the acquisition, AerCap would own and manage a portfolio of more than 2,000 aircraft, about 60% of which are narrow-body aircraft. The company would have an order book of about 500 next-generation jets. “It is clear that we bought the right deal at the right time at the right price,” AerCap CEO Aengus Kelly said in a conference call. “And, critically, we are partnering with the right partners.” AerCap’s $ 24 billion committed financing to Citigroup Inc. and Goldman Sachs Group Inc. is the second largest global loan so far this year, after the $ 25 billion obtained by Verizon Communications Inc last month, according to data compiled by Bloomberg. The large business could help boost global loan issuance, which has fallen 42% year on year. Reverse Split Separately, GE maintained its financial forecast for 2021, forecasting adjusted earnings of 15 to 25 cents per share. That was behind the 26-cent average of analysts’ estimates compiled by Bloomberg. In addition, the company said that its board would recommend a reverse split of shares in the ratio of 1 to 8 and a “corresponding proportional reduction in the number of authorized shares. “Downloading GE Capital Aviation Services, or Gecas, is the most spectacular deal so far for Culp, who took charge in 2018 with a mandate to rescue the U.S. industrial icon. He disposed of assets to reduce the heavy conglomerate, giving the stocks a boost after a corporate collapse that wiped out hundreds of billions of dollars in market value. cash sources, will allow $ 30 billion in debt relief and will substantially address the company’s stressed financial situation on an accelerated schedule. A 46% stake in the combination with AerCap will allow GE to participate in a gradual commercial aerospace recovery. – Karen Ubelhart and Christina Constantino, industrial analysts – click here to read the surveyThe Boston-based company plans to use proceeds from the sale to cut debt by about $ 30 billion, for an expected total reduction of more than $ 70 billion since the end of 2018. The deal is expected to close in nine to twelve months, and the more than 400 Gecas employees will be transferred to AerCap.GE with a $ 3 billion non-cash charge on the deal in the first quarter. The company may be cut by S&P Global Ratings due to the consolidation of GE Capital’s finances. GE DealmakerThe transaction “will allow us to significantly reduce GE’s risk and continue on our path to being a well-capitalized company,” Culp said in the statement. “GE makes money and a significant stake in the stronger combined company, with the flexibility to monetize as the aviation industry recovers.” Last year, GE completed the sale of its biopharmaceutical business to Culp’s former employer, Danaher Corp., for $ 21.4 billion. In 2019, the company agreed to sell an aircraft financing business for $ 3.6 billion to Apollo Global Management and Athene Holding Ltd. while the struggling manufacturer reduced its once-vast lending arm. AerCap-Gecas’ expanded lessor will gain leverage in negotiating with manufacturers such as Boeing Co. and Airbus SE, and is likely to receive antitrust scrutiny from authorities and stakeholders. The new company would also be able to focus on customers of stronger airlines during the recovery from the pandemic, when many will depend on lessors for financing flexibility. “A potential combination of No. 1 and No. 2 in any market is usually sufficient reason for regulators to review an agreement, but it does not necessarily mean that regulators will not approve it or that significant concessions will be necessary,” said Aitor Ortiz, antitrust analyst Bloomberg Intelligence, prior to the announcement of the deal. “The fact that the airline industry is experiencing turbulence now can be considered in the analysis.” The deal raises the profile of Kelly, CEO of AerCap. It emerged on the global stage in 2014 with AerCap’s $ 7.6 billion acquisition of American International Group’s leasing pioneer ILFC. AerCap, based in Dublin and listed on the New York Stock Exchange, had a market cap of $ 6.6 billion on March 5, before reports of GE’s talks. (Updates share in the fifth paragraph) For more articles like this, visit us at bloomberg.comSubscribe now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP