General Electric has agreed to merge its aircraft leasing unit with Ireland’s AerCap in a $ 30 billion deal that will go a big step further towards splitting off all but its core industrial businesses.
GE Capital Aviation Services, or Gecas, is the largest remaining part of GE Capital and generated more than half of its revenue of $ 7.25 billion in 2020. After the deal with AerCap, GE Capital is expected to have net worth $ 21 billion, up from $ 68 billion at the end of last year.
The deal creates a leasing giant with more than 2,000 aircraft, with GE receiving approximately $ 24 billion in cash and a 46% stake in the combined company.
“This really marks the transformation to a more focused, simpler, and stronger GE,” CEO Larry Culp said CNBC. “We will be able to focus our four core businesses with a focus on energy transition, precision health and the future of flight, and we will undoubtedly be a financially and operationally stronger company. ”
GE will also use the cash from the sale to pay off debt that has overshadowed its industrial companies since the 2008 financial crisis. After the deal, it will have shed roughly $ 70 billion in debt since 2018 The Wall Street Journal According to reports, Culp has sought “to correct the course of a company that has been buffeted in recent years by poor prospects for some of its key businesses and a structure that has fallen out of favor with investors.”
GE said in 2015 that it will leave most of GE Capital, a once sprawling lending business that could rival major U.S. banks. With the sale of Gecas, GE Capital only retains a smaller leasing business that is helping to finance the purchase of GE power and wind turbines as well as a legacy insurance business.
“Moving away from GE Capital on a larger scale to focus on a really bright future for the industrial business feels like a smart move strategically,” said Daniel Babkes, partner at Pzena Investment Management.
GE is also proposing a reverse 1-for-8 stock split that would reduce its outstanding shares from 8.77 billion to about 1.1 billion.
“The reverse stock split would reduce the number of shares outstanding to a number more typical of companies of comparable market capitalization,” said GE.
Photo credit: General Electric