“General Electric Co. is nearing a $30 billion-plus deal to combine its aircraft-leasing business with Ireland’s AerCap Holdings NV, the latest in a string of moves by the industrial conglomerate to restructure its once-sprawling operations,” WSJ writes.
Why It Matters: GE Capital Aviation Services (GECAS) is the biggest remaining unit 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 has taken significant steps back away from the lending business since 2015 and also signals a change of direction for CEO Larry Culp as he tries to right the ship.
Numbers To Consider:
- GECAS has more than 1,600 aircraft owned or on order, as one of the world’s biggest jet-leasing companies.
- The unit had $35.86 billion in assets as of Dec. 31.
- AerCap has a market value of $6.5 billion, an enterprise value of roughly $34 billion and somewhere around 1,400 owned or ordered aircraft.
Industry Outlook: “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 $3.95 billion of revenue in 2020.
- GE wrote down the aircraft portfolio by $500 million in Q4.
Meanwhile: GE has sought to “even out cash flows and refocus on core areas.” Culp has jettisoned the company’s biotech business, lightbulb unit and unloaded its stake in an oil-field-services firm. GE has cut overhead costs and jobs and continues streamlining its power business, but the jet-engine business still weighs heavy.
- “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.”