GE Nears deals with the amalgamation of an aircraft rental unit with AerCap

The GE GE 0.29%

unit, known as GE Capital Aviation Services, or Gecas, the largest remnant of GE Capital, a lending activity that once rained and tore up the largest banks in the U.S. but went bankrupt. company near 2008 financial crisis. GE had already taken a big step back from the lending industry in 2015 when it announced it would let go of most of GE Capital, and a contract for Gecas would represent another major move. towards that.

He would also represent another important move by GE CEO Larry Culp to rectify the course of a company in recent years by finding opportunities for some of its key lines of business and an outdated structure. favor with investors.

With more than 1,600 aircraft owned or booked, Gecas is one of the largest jet rental companies in the world, along with AerCap and Air Lease Corp. based in Los Angeles. It leases passenger aircraft manufactured by Boeing Co. and Airbus SE as well as regional jets. and cargo planes to customers ranging from well-known airlines to entry-level. Gecas had $ 35.86 billion in assets as of December 31.

AerCap has a market value of $ 6.5 billion and an enterprise value – adjusted for debt and cash – of about $ 34 billion, according to S&P Capital IQ, and about 1,400 aircraft owned or ordered. The company has experience in contract making, paying around $ 7.6 billion in 2014 to revenues International Lease Finance Corp. AerCap’s revenue last year was about $ 4.4 billion, down from about $ 5 billion in the previous few years.

The aviation industry has been hit hard by the Covid-19 pandemic, which has led to a dramatic decline in global travel and has encouraged airlines to land planes. Some airlines have tried to delay paying rent or buying new planes. Gecas had an operating loss of $ 786 million on revenue of $ 3.95 billion in 2020. GE dropped about $ 500 million on the value of its flight package in the fourth quarter.

Joining the companies would provide cost cutting opportunities and help the new entity to recession.

Separating Gecas could help GE with its efforts to find its balance and improve cash flows. Despite recent increases, GE ‘s share price is still lower than it was before major problems emerged in the company’ s power and finance units in recent years.

The Boston-based company has a market value of about $ 119 billion after shares more than doubled in the past six months as they posted improving results. However, the stock has fallen about three quarters from the peak just over 20 years ago.

Mr. Culp became the first CEO from outside GE at the end of 2018 after the company forced its division and sales businesses. The former Danaher Corp.

leader has sought to simplify GE ‘s extensive conglomerate structure, like other industry giants such as Siemens AG and Honeywell International Inc.

made a few years ago.

The active investor Trian Fund Management LP, which has held a key position in the company since 2015 and holds a seat on its board, has supported these changes.

Early in his tenure, Mr Culp said he had no plans to sell Gecas, a move previously thought of by John Flannery, after the unit attracted interest from private equity firms pushing further into the rental industry.

Mr. Culp has even tried to cash flow and refocus on key areas. Among the jobs he has separated are the company’s biotechnology business, which Danaher bought in a $ 21 billion contract that closed last year. GE sold its flagship lighting business in a much smaller deal last year, and previously said it was loading most of it in the oil field services company Baker Hughes Co.

GE has cut overhead costs and jobs in its jet-engine unit while streamlining its power business. The pandemic continues to plague the jet engine industry, GE’s largest segment, however.

The company also manufactures healthcare equipment and power generation equipment, and the rest of GE Capital is expanding loans to help customers purchase their devices and there is also legacy insurance funds.

AerCap is based in Ireland and Gecas also has its headquarters there. The airline rental industry has long had a strong presence in Ireland due to the country’s favorable tax regulation and the importance of Guinness Peat Aviation in the development of the sector. (A contract between GE and AerCap would reunite two companies that bought their core assets from GPA.) The industry has become more competitive as Chinese companies have gained market share, however, and the merger could help give the new body to stop that tide.

Shares in airline rental companies fell along with much of the market in the early days of the pandemic as demand came from major airlines, which hire aircraft to avoid property costs. But many of the major infectious stocks have recovered lost ground and then some in the months since locks have become easier and the outlook for travel improves.

AerCap chief executive Aengus Kelly said in their fourth quarter employment call this month that he expects airlines to move more towards charter planes as they rebuild the airline. their balance sheets, which would benefit the company and their peers.

“Their desire to use a lot of scarce capital to buy planes will remain silent for some time,” he said. “The priority is to repay government debts or subsidies. ”

Write to Cara Lombardo at [email protected] and Emily Glazer at [email protected]