General Electric has agreed to combine its aircraft-leasing unit with Ireland’s AerCap in a $30 billion deal that will take it a major step further toward shedding all but its core industrial businesses.
GE Capital Aviation Services, or Gecas, is the largest remaining piece of GE Capital, accounting for more than half of its $7.25 billion of revenue in 2020. After the deal with AerCap closes, GE Capital is expected to have an estimated $21 billion in assets, down from $68 billion at the end of last year.
The deal will create a leasing giant with more than 2,000 aircraft, with GE getting about $24 billion in cash and a 46% stake in the combined company.
“This really marks the transformation into a more focused, simpler, and stronger GE,” CEO Larry Culp told CNBC. “We’re going to be able to focus our core four industrial businesses aimed at the energy transition, precision health care, and the future of flight, and there’s no question we’re going to be a stronger company going forward financially and operationally.”
GE will also use the money from the sale to pay down debts that have overshadowed its industrial businesses since the 2008 financial crisis. Following the deal, it will have paid down about $70 billion in debt since 2018. As The Wall Street Journal reports, Culp has been seeking “to right the course of a company that has been battered in recent years by souring prospects for some of its top business lines and a structure that has fallen out of favor with investors.”
GE said in 2015 it would exit the bulk of GE Capital, a once-sprawling lending operation that rivaled the biggest U.S. banks. With the sale of Gecas, GE Capital will retain only a smaller leasing operation that helps finance purchases of GE power turbines and wind turbines and a legacy insurance business.
“Moving on in a bigger way from GE Capital to focus on a really promising future for the industrial business, it feels like a smart move strategically,” said Daniel Babkes, a partner at Pzena Investment Management.
GE is also proposing a 1-for-8 reverse stock split, which would reduce its shares outstanding to about 1.1 billion from 8.77 billion.
“The reverse stock split would decrease the number of shares outstanding to a number more typical of companies with comparable market capitalization,” GE stated.
Photo credit: General Electric