GE sells jet leasing unit to AerCap for $ 30 billion

GE sells jet leasing unit to AerCap for $ 30 billion

General Electric on Wednesday announced a deal to sell its aircraft leasing business to AerCap for $ 30 billion, creating a new industry giant amid the pandemic-induced air travel slowdown.

As part of the transaction, the GE unit will be integrated into the Irish company. GE will own a 46% stake in the new entity and appoint two members to AerCap’s board of directors, according to the announcement.

The combined company will have more than 2,000 owned and operated aircraft, more than 300 helicopters and more than 300 customers worldwide, AerCap said.

The airline industry remains in a deep slowdown due to the coronavirus pandemic, although progress in vaccination campaigns is expected to lead to a gradual rebound.

“As the air transport recovery gathers pace, this transaction represents a unique opportunity that we believe will create long-term value for our investors,” said AerCap Managing Director Aengus Kelly.

GE will receive $ 24 billion in cash from AerCap along with shares of the new company valued at approximately $ 6 billion.

The transaction, subject to shareholder and regulator approval, is expected to close in the fourth quarter of 2021.

– Simpler GE –

The sale of GE’s Capital Aviation Service (GECAS) marks the long-awaited end of the powerful financial arm of US industrial giant, GE Capital, as managing director Lawrence Culp revives after a difficult period.

The rest of GE Capital will be integrated into the parent company, and GE has announced its intention to focus on its industrial core of energy, renewables, aviation and healthcare.

It also plans to reduce its finance debt by around $ 30 billion, using the proceeds from the AerCap transaction and existing cash sources, bringing its total debt reduction since late 2018 to more than $ 70 billion.

“Today marks GE’s transformation into a more focused, simpler and stronger industrial company,” Culp said.

AerCap said 60% of the combined company’s fleet will be narrow-body planes, and these small planes also include more than 90% of the nearly 500 new planes that have been ordered.

Narrow-body planes are expected to be in high demand early in the post-Covid-19 recovery, during which short-haul flights are expected to rebound faster than international travel.

AerCap reported a profit of $ 1.1 billion in 2019, but lost $ 299 million in 2020.

Likewise, GECAS made more than $ 1 billion in profit in 2019, but lost $ 786 million last year.

Colin Scarola, analyst at CFRA Research, said the liquidation of GE Capital is part of a long-term strategy of “focusing more on their businesses that actually do engineering, design and make real products. rather than doing the funding “.

But transactions like the AerCap deal come at a cost, Scarola said.

“Every time they make a sale like this, whether it’s selling GECAS here potentially, or biopharmaceutical last year, they’re selling businesses that have historically been pretty profitable for them,” Scarola said. .

“And what they have left is the electricity and renewables sector, and the aviation sector, which are all struggling right now.

“Investors need to keep in mind both the debt reduction benefit they get from a deal like this, but also the loss of a pretty good business in the long run.”

Shares of GE fell 5.4% to $ 13.25, while AerCap fell 4.7% to $ 53.39.

After the deal was announced, S&P Global Ratings placed GE on credit watch for possible debt downgrade due to the expectation that “GE’s debt leverage will be higher than expected due to the consolidation of the finances of GE Capital “.

bur-jmb / hs

There is no more story.
Next 3 questions: Task Force 2021 and the future of MIT's finances | MIT News

No Comment

Leave a reply

Your email address will not be published.