Informed sources revealed that General Electric Co is close to concluding an agreement to merge its aircraft leasing business with Irish AerCap Holdings NV, in a deal that, if completed, would bring together the two largest aircraft financing and leasing companies in the world. In a market suffering from the Corona pandemic.
The deal may be announced on Monday, according to a source who requested anonymity due to the continuing talks, while the Wall Street Journal reported yesterday, Sunday, that the deal is expected to be worth more than $ 30 billion. The resulting entity will own the merger of GE Capital Aviation Services, or Gecas, with AerCap, with nearly 3,000 aircraft owned, operated or on-order.
The merger will accelerate the plan by Larry Caleb, CEO of GE, which aims to reorganize the major American industrial company after an epic meltdown.
Although the terms of the potential agreement with AerCap are unclear, the sale of Gecas could generate funds for GE estimated at $ 25 billion, according to Bloomberg Intelligence in its 2019 report. Electric “sold its biopharmaceutical business to Danaher Corp, where Caleb previously worked, for $ 21.4 billion.”
In an interview, George Ferguson, an analyst at Bloomberg Intelligence, said: “For General Electric, the old business world, when you needed a leasing company to support your industrial activity, was over. As for AerCap, that might be an offer. She can turn it down. “
General Electric declined to comment, while AerCap representatives could not be reached for comment when contacting them on Sunday outside normal business hours.
Aviation sector pains
AerCap, which is listed on the New York Stock Exchange, has a market value of $ 6.6 billion. Its shares rose 11% this year until March 5, after a 26% decline last year, and General Electric’s shares jumped 26% this year, after a 3.2% decline in 2020.
The Corona pandemic affected the travel sector, prompting airlines around the world to cancel purchase orders and postpone pick-up dates, and schedule aircraft lease payments as well.
Given the companies’ weight in the global aircraft financing, leasing and management industry, the combined group is likely to be subject to scrutiny by antitrust authorities, other regulators and business partners.
The partnership will accelerate GE’s transformation away from its old business model of using a robust rental platform to drive sales of commercial aircraft that use the company’s engines. GE’s financial arm has also been drastically curtailed since it was nearly paralyzed during the 2008 global financial crisis.
In recent years, Caleb abandoned assets as part of his broader transformation effort at GE, after the collapse that wiped out more than $ 200 billion of its market value in 2017 and 2018. Under his leadership, the “Gecas” portfolio was left in a “chargé d’affaires” status, according to Ferguson.
In 2019, General Electric agreed to sell the aircraft financing business for $ 3.6 billion to Apollo Global Management and Athene Holding Ltd, as the struggling manufacturer scaled back its massive lending arm. In the same year, Caleb accelerated the plan to sell GE’s stake in oilfield service provider Baker Hughes, in an effort to refocus the sprawling industrial empire.
The asset sale increased the cash that GE used to pay off the ballooning debt burden, which is one of Caleb’s top priorities in the transition. The company has reduced debt by about $ 30 billion since 2019, including $ 16 billion last year, and GE’s total loans reached about $ 75 billion at the end of 2020.
The deal with Gecas is likely to amplify Ingas Kelly, the powerful CEO of AerCap, better known as GAS, who came into the global spotlight in 2014, with AerCap’s acquisition of ILF. (ILFC), the leasing specialist of the American International Group, with a value of $ 6.7 billion.
Ferguson believes that by pooling assets, the new entity may be able to access the capital markets at a lower cost than GECAS can do under the GE umbrella.
Gecas acquired assets of about $ 35.9 billion at the end of last year, of which about 1650 aircraft were owned, under management or on order. According to the company’s file with the regulatory authorities, AerCap, which has assets of $ 42 billion, owns 939 aircraft and operates 105 aircraft. It also ordered 286 aircraft, including the Airbus “SE 320neo” and Boeing “737 MAX” models.
Gecas CEO Greg Conlon told the Aviation Economics Conference in January that the company was looking at mergers, acquisitions, or portfolio sales, adding that he was seeing opportunities in cargo planes and engine leasing. In turn, Kelly said at the same conference that fewer airline customers were seeking to delay their charter operations.