General Electric is combining its aircraft leasing business with Ireland’s AerCap Holdings in a deal valued at more than $30…
General Electric is combining its aircraft leasing business with Ireland’s AerCap Holdings in a deal valued at more than $30 billion, a milestone in what has become a six-year odyssey to reshape the global conglomerate once sprawling.
By pushing GE Capital Aviation Services, or GCAS, into a separate company, GE is essentially closing the books on GE Capital, the financial wing of General Electric that nearly sank the entire company during the 2008 financial crisis.
“Today marks GE’s transformation into a more focused, leaner and stronger industrial company,” Chairman and Chief Executive Officer Larry Culp said in a prepared statement Wednesday.
AerCap will pay approximately $24 billion in cash for GCAS, and GE will take an approximately 46% stake in the combined company, and $1 billion paid in notes or cash at closing.
GE’s Capital Aviation Services and AerCap are two of the world’s largest aircraft lessors with more than 2,500 aircraft between them. The companies lease commercial aircraft from hundreds of airlines around the world.
The global pandemic has sent shockwaves through the entire airline industry, and the deal announced on Wednesday could have far-reaching ramifications.
That could mean more pressure on planemakers like Boeing and Airbus if beleaguered airlines choose not to buy planes. It could also mean some breathing room for airlines reeling from the fall in air travel, if they can cut costs in the short term through leases.
A combined company would in all likelihood be able to reduce its own costs and pass them on to customers.
As for GE, it said Wednesday it would be able to reduce its debt by about $30 billion, bringing total debt reduction since the end of 2018 to more than $70 billion.
In 2015, GE announced a radical transformation of the company, pledging to rid itself of billions of assets to better focus on the industrial heart of the company, namely electricity, aviation, energies renewables and health.
With the new company formed with GCAS, GE Capital’s largest remaining operation, General Electric has largely removed what many industry analysts saw as a risk. This belief existed before the financial crises that nearly brought Wall Street to its knees more than a decade ago.
GE has experienced a series of upheavals following the crisis.
Longtime CEO Jeff Immelt, who had built GE into a massive conglomerate that many believed had grown complex, was ousted in 2017. He was replaced by John Flannery, who only lasted a year at this post.
Culp took the job in October 2018, promising to continue GE’s transformation.
“Now is the right time to further accelerate our transformation,” Culp said. “This action will allow us to significantly reduce the risks associated with GE and continue on our path to becoming a well-capitalized company.”
The rest of GE Capital, including Energy Financial Services and its run-off insurance business, will become part of GE Corporate upon closing of the transaction.
GE gets two directors for newly created seats on AerCap’s board. The company also announced on Wednesday a stock consolidation at a 1:8 ratio and a corresponding proportionate reduction in the number of authorized common shares.
The deal is expected to close in nine months to a year. It still needs to be approved by AerCap shareholders.
Shares fell almost 4% at the opening bell.
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