(Bloomberg) – General Electric Co. is approaching an agreement to combine its jet leasing business with Irish AerCap Holdings NV, people familiar with the matter said, in a possible deal that would unite the two largest aircraft lenders in the world. world in a turbulent market due to the coronavirus pandemic.
The transaction could be announced as early as Monday, said one of the people, who asked to remain anonymous to discuss the matter. The deal is expected to be worth more than $ 30 billion, said the Wall Street Journal, which released the talks on Sunday. Among them, GE Capital Aviation Services, or Gecas, and AerCap have nearly 3,000 aircraft of their own, managed or ordered.
A combination would accelerate GE CEO Larry Culp’s drive to streamline America’s industrial icon after an epic corporate meltdown. Although the terms of the possible deal with AerCap are unclear, a sale of Gecas could bring GE about $ 25 billion, Bloomberg Intelligence said in a 2019 report. Last year, GE completed the sale of its business. biopharmaceutical for Culp’s former employer, Danaher Corp., for $ 21.4 billion.
“The old world, where you needed a leasing company to support your production, is over,” said George Ferguson, an analyst at Bloomberg Intelligence, in an interview. “For AerCap, this may be too good to be turned down.”
GE declined to comment, and AerCap representatives could not be reached immediately for comment outside regular business hours on Sunday.
Aviation pain
AerCap, based in Dublin and listed on the New York Stock Exchange, has a market value of $ 6.6 billion. The shares advanced 11% this year through March 5, after a 26% drop last year. GE made a 26% jump this year, after a 3.2% decline in 2020.
The pandemic hit the aviation industry and prompted airlines around the world to cancel new orders for jet planes, delay delivery dates and postpone lease payments. But a combination is likely to receive scrutiny from antitrust authorities, other regulators and business partners, given the weight of the two companies in global aircraft financing.
For GE, a partnership would extend a change in the company’s long-standing business model from using its powerful leasing platform to generate sales of commercial aircraft powered by the company’s jet engines. GE’s financial arm was significantly reduced, as it nearly paralyzed the company during the 2008 financial crisis.
Culp has been losing assets in recent years as part of its broader recovery effort at GE after a collapse that wiped out a total of more than $ 200 billion in market value during 2017 and 2018. Under his leadership, the Gecas portfolio was left in something similar to “janitor status,” said Ferguson.
Asset Sales
In 2019, GE 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. In the same year, Culp accelerated a plan to sell GE’s stake in oilfield service provider Baker Hughes in an effort to redirect GE’s once-expanding industrial business.
Asset sales have raised a critical cash flow that GE used to pay off its bloated debts, one of Culp’s top priorities in his recovery move. The company has cut about $ 30 billion in debt since 2019, including $ 16 billion last year. GE had total loans of about $ 75 billion at the end of 2020.
A deal with Gecas would likely raise the profile of Aengus “Gus” Kelly, CEO of AerCap. It emerged on the global stage in 2014 with AerCap’s acquisition of American International Group’s leasing pioneer ILFC for $ 7.6 billion. By pooling assets, the new entity may be able to access capital markets more cheaply than Gecas could operate under GE’s corporate umbrella, said Ferguson.
Gecas had about $ 35.9 billion in assets at the end of last year, with about 1,650 of its own aircraft, repaired or ordered. AerCap, with assets of US $ 42 billion, owned 939 aircraft and managed 105, according to regulatory documents. It also had 286 planes on order, including jet models like the Airbus SE A320neo and Boeing Co. 737 Max.
Gecas CEO Greg Conlon said at the Airline Economics conference in January that the company was looking at mergers and acquisitions and portfolio purchases, and that he saw opportunities in cargo aircraft and engine leasing. Kelly spoke at the same conference and said that fewer airline customers were seeking postponements.
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