GE signs agreement to combine aircraft leasing unit with AerCap

General Electric Co. is approaching a deal worth more than $ 30 billion to combine its aircraft leasing business with Irish AerCap AER 1.62% Holdings NV, according to people familiar with the matter, the latest in a series of initiatives by the industrial conglomerate to restructure its once extensive operations.

Ticker	Safety	Last	Change	Change %
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%

While the details of how the deal would be structured could not be found out, it is expected to have a valuation of more than $ 30 billion, some people said. An announcement is expected on Monday, assuming the talks do not fall apart.

The GE 0.29% GE unit, known as GE Capital Aviation Services, or Gecas, is the largest part of GE Capital, a loan operation that rivaled the largest US banks, but nearly sunk the company during the financial crisis. 2008. GE already took a big step back in the lending business in 2015, when it said it would exit most of GE Capital, and a deal for Gecas would represent another major move in that direction.

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It would also represent another significant move by GE’s chief executive, Larry Culp, to correct the course of a company that has been hurt in recent years because of the tightening of prospects in some of its main lines of business and a structure that has fallen into disgrace to investors.

With more than 1,600 own or ordered aircraft, Gecas is one of the largest jet leasing companies in the world, alongside AerCap and 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 major airlines to startups. Gecas had $ 35.86 billion in assets as of December 31.

AerCap has a market value of $ 6.5 billion and a business value – adjusted for debt and cash – of about $ 34 billion, according to S&P Capital IQ, and about 1,400 of its own or ordered aircraft. The company has experience in closing deals, paying about $ 7.6 billion in 2014 to buy International Lease Finance Corp. AerCap’s revenue last year was about $ 4.4 billion, down from about $ 5 billion in previous years.

The aviation business was hit hard by the Covid-19 pandemic, which resulted in a sharp drop in global travel and prompted airlines to land planes. Some airlines have sought to delay payment of the lease or purchase of new aircraft. Gecas had an operating loss of $ 786 million with revenue of $ 3.95 billion in 2020. GE made a reduction of about $ 500 million in the value of its aircraft portfolio in the fourth quarter.

The combination of the companies can offer opportunities to cut costs and help the new entity to face the crisis.

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Separating Gecas could help GE in its efforts to strengthen its balance sheet and improve cash flow. Despite a recent increase, GE’s share price remains below where it was before significant problems in the company’s energy and finance units arose in recent years.

The Boston company has a market capitalization of about $ 119 billion, after the stock has more than doubled in the past six months, with better results. Still, stocks fell about three-quarters of the peak just over 20 years ago.

Culp became the first CEO outside of GE in late 2018, after the company was forced to cut its dividends and sell businesses. The former head of Danaher Corp. sought to further simplify GE’s broad conglomerate structure, as other industrial giants like Siemens AG and Honeywell International Inc. have done in recent years.

Activist investor Trian Fund Management LP, who has held a significant position in the company since 2015 and has a seat on its board, supported these changes.

Early in his tenure, Culp said he had no plans to sell to Gecas, a move that his predecessor John Flannery had considered after the unit attracted the interest of private equity firms that were advancing in the leasing business.

Mr. Culp has sought to standardize cash flows and redirect the focus to the main areas. The operations he divested include the company’s biotechnology business, which was bought by Danaher in a $ 21 billion deal closed last year. GE also sold its iconic lamp business in a much smaller deal last year and said earlier that it was divesting its majority stake in the oil field services firm Baker Hughes Co.

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GE cut indirect costs and jobs at its jet engine unit, while optimizing its energy business. The pandemic continues to put pressure on the jet engine business, GE’s largest division, however.

The company also makes healthcare machines and power generation equipment, and the rest of GE Capital provides loans to help customers buy their machines and also contains legacy insurance assets.

AerCap is headquartered in Ireland and Gecas is also headquartered there. 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. (An agreement between GE and AerCap would bring together 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 to contain that tide.

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Aircraft leasing companies’ shares plummeted along with much of the market in the early days of the pandemic, as demand from major airlines, which rent aircraft to avoid the costs of owning them, evaporated. But many of the major landlords’ stocks recovered and lost ground, and some in the following months, as blockages eased and travel prospects improved.

AerCap Chief Executive Aengus Kelly said in his fourth quarter earnings conference call this month that he expects airlines to move more into aircraft leasing as they rebuild their balance sheets, which would be a blessing to the company. company and its peers.

“Your appetite for employing large amounts of scarce capital to purchase aircraft will remain muted for some time,” he said. “The priority will be to pay debts or government grants.”

–Thomas Gryta contributed to this article.