GE nears deal with AerCap to create behemoth aircraft lessor

The deal is expected to have a value of more than $40.4 billion. PHOTO: REUTERS

NEW YORK (BLOOMBERG) - General Electric is nearing an agreement to combine its jet-leasing business with Ireland's AerCap Holdings, said people familiar with the matter, in a potential deal that would join the world's two biggest aircraft financiers in a market roiled by the coronavirus pandemic.

A transaction may be announced as soon as Monday (March 8), said one of the people, who both asked not to be named discussing the matter. The deal is expected to have a value of more than US$30 billion (S$40.4 billion), said the Wall Street Journal, which reported the talks earlier Sunday. Between them, GE Capital Aviation Services, or Gecas, and AerCap have almost 3,000 aircraft owned, managed or on order.

A combination would speed GE chief executive officer Larry Culp's push to streamline the US industrial icon after an epic corporate meltdown. While terms of the potential agreement with AerCap are unclear, a sale of Gecas could garner GE about US$25 billion, Bloomberg Intelligence said in a report in 2019. Last year, GE completed the sale of its bio-pharmaceutical business to Mr Culp's former employer, Danaher Corp, for US$21.4 billion.

A deal could be a "win-win situation" for both the companies and the airline industry, said Mark Martin, founder of Martin Consulting, which advises the aviation industry. "Clearly GE and AerCap see renewed interest for engine refinance and engine leasing. This is being done in the backdrop of a post-Covid recovery. The industry has to rebuild itself so in a way this is also uniquely positioned with softening the blow on airlines," he said.

GE declined to comment, and AerCap representatives couldn't immediately be reached for comment outside regular business hours on Sunday.

Aviation pain

AerCap, based in Dublin and listed on the New York Stock Exchange, has a market value of US$6.6 billion. The shares advanced 11per cent this year through March 5 after a 26 per cent drop last year. GE has jumped 26 per cent this year following a 3.2 per cent decline in 2020.

The pandemic has hammered the aviation industry and pushed airlines around the world to cancel new jetliner orders, push back delivery dates and defer lease payments. But a combination would be likely to receive scrutiny from antitrust authorities, other regulators and business partners, given the weight of the two companies in global aircraft finance.

For GE, a tie-up would extend a shift away from the company's longtime business model of using its powerful leasing platform to generate sales of commercial aircraft powered by the company's jet engines. GE's finance arm has been significantly pared back since it nearly crippled the company during the 2008 financial crisis.

"The old world where you needed a leasing a company to support your manufacturing is gone," Bloomberg Intelligence analyst George Ferguson said. "For AerCap, this could be something that's too good to refuse." Mr Culp has been shedding assets in recent years as part of his broader turnaround effort at GE after a collapse that wiped out a total of more than US$200 billion in market value during 2017 and 2018. Under his leadership, the Gecas portfolio has been left in something akin to "caretaker status," Mr Ferguson said.

Asset sales

In 2019, GE agreed to sell an aircraft-financing business for US$3.6 billion to Apollo Global Management and Athene Holding Ltd as the ailing manufacturer slimmed down its once-vast lending arm. The same year, Mr Culp sped up a plan to sell off GE's stake in oilfield-services provider Baker Hughes in a push to refocus GE's once-sprawling industrial businesses.

The asset sales have raised critical cash that GE has used to repay its bloated debt load, one of Mr Culp's top priorities in his turnaround drive. The company has cut some US$30 billion in debt since 2019, including US$16 billion last year. GE had total borrowings of about US$75 billion at the end of 2020.

A deal with Gecas would likely elevate the profile of Aengus "Gus" Kelly, AerCap's hard-charging CEO. He emerged on the global stage in 2014 with AerCap's US$7.6 billion acquisition of leasing pioneer ILFC from American International Group. By pooling assets, the new entity may be able to access the capital markets more cheaply than Gecas could acting under GE's corporate umbrella, Mr Ferguson said.

Gecas had about US$35.9 billion in assets at the end of last year, with about 1,650 aircraft owned, serviced or on order. AerCap, with assets of US$42 billion, owned 939 aircraft and managed 105, according to a regulatory filing. It also had 286 planes on order, including jet models such as the Airbus A320neo and Boeing 737 Max.

Gecas CEO Greg Conlon said at the Airline Economics conference in January that the company was looking at mergers and acquisitions and portfolio purchases, and that he saw opportunities in cargo aircraft and engine leasing. Mr Kelly spoke at the same conference and said fewer airline customers were seeking deferrals.

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