General Electric announced on Wednesday that it will sell its $ 30 billion jet leasing business to AerCap. This would create a massive lessor as the aviation industry grapples with the Covid-19 pandemic and GE tries to reduce its debt burden.
The deal would give GE a 46% stake in the combined company and generate approximately $ 24 billion in cash. GE Capital Aviation Services, or Gecas, is part of GE Capital that has been scaled back since the financial crisis. GE said it would reduce its debt by approximately $ 30 billion upon completion of the transaction, using the proceeds from the deal and existing cash.
After the deal was announced, GE shares rose nearly 2% in premarket trading, while AerCap's rose more than 4%.
""This is the right time to further accelerate our transformation, "said Larry Culp, CEO of GE, in a business announcement. This move will enable us to significantly reduce GE's risk and continue our journey to become a well-capitalized company.
Both companies are major customers of Boeing and rival Airbus. A combination of the two factors that analysts are calling the world's largest aircraft rental company can push for better aircraft prices, just as Boeing and Airbus are trying to gain a foothold in the pandemic.
According to consulting firm Ascend by Cirium, aircraft leasing companies own around half of the more than 22,000 single- and double-ship commercial aircraft.
"You will have a lot of bargaining power," said Eric Bernardini, co-director of aerospace, defense and aerospace practice at consulting firm AlixPartners.
Gecas is closely tied to GE's massive aircraft engine business as the leasing company often finances and leases aircraft equipped with GE engines that the company later operates.
Gecas owned, serviced, or ordered over 1,600 aircraft and had assets of $ 35.86 billion at the end of 2020. AerCap owned, managed, or ordered approximately 1,330 aircraft with assets of $ 42 billion as of the end of last year. according to regulatory filings.
GE said $ 34 billion net worth, including engine and helicopter leases, along with purchase commitments and more than 400 employees would be transferred to AerCap. GE may appoint two directors to new seats on AerCap's board of directors.
Ireland-based AerCap, whose shares are traded on the NYSE, had a market cap of nearly $ 7.27 billion as of Tuesday's close of trading. Stocks are up more than 10% this week since the Wall Street Journal reported Sunday that the two companies were close to a deal.
According to GE's annual report, the Gecas unit posted a loss of $ 786 million last year, compared to a profit of $ 1.03 billion last year. AerCap posted a net loss of nearly $ 299 million last year, after gaining more than $ 1.1 billion in 2019, and posted a fourth quarter profit of $ 28.5 million.