General Electric is selling off its aircraft leasing business, closing the books on its once mighty GE Capital unit, the financial arm of the company that had been its largest business and one of the world’s most dominant financial institutions.
GE is selling the aircraft leasing business known as GECAS to rival AerCap (AER), an Ireland-based company that will become by far the largest company in that industry with an estimated 25% to 30% share of the market. GE will receive $24 billion in cash and stock that will give it about a 46% stake in the combined company.
The company plans to use proceeds to reduce its debt load by about $30 billion, part of a multi-year effort to slash $70 billion of debt from its balance sheet. It is the latest and among the most dramatic steps GE is taking to reshape and slim down the now struggling company.
GECAS, which buys aircraft and leases them to airlines and other operators, had been providing most of the revenue for the GE Capital unit. But sales fell about 20% last year as the Covid-19 pandemic caused a plunge in air travel and massive losses across the airline industry. GECAS’ cash-starved airline customers paid only about 84% of the unit’s invoices in 2020. It resulted in a $786 million loss for 2020 after a $1 billion profit in 2019.
After the deal, GE Capital will no longer be a separate unit of General Electric. Its remaining business – Energy Financial Services (EFS) and an insurance business which was already being wound down, will be reported as part of its corporate operations.
“Today marks GE’s transformation to a more focused, simpler, and stronger industrial company,” said GE CEO Larry Culp, who just two years ago told investors the company had “no plans to sell GECAS.”
End of an era
The effective end of GE Capital is the end of an important era for the former conglomerate.
The company has been trying to become leaner and more profitable in recent years, selling off its appliance business in 2016, its NBC Universal entertainment unit in 2011 and its light bulb business in 2020, among other divisions.
And while those businesses had a higher public profile than GE Capital, no business was more important to the conglomerate during its heyday than GE’s finance arm. It provided financing on many of its industrial products, such as jet engines and electric power plants, as well as a key source of financing for small business and consumers. It even became a major player in the subprime mortgage business.
But when the housing bubble burst and the subsequent meltdown in financial markets in 2008, no part of the GE business was wounded more than GE Capital, and what had once been a key driver of the company’s success became an albatross. GE sold off most of the real estate and other assets from GE Capital in 2015 and has been trying to exit its business ever since step by step.
While GE plans to use the sale to shave its debt, consolidating what’s left of GE Capital into GE corporate will likely lead Standard & Poor’s to lower its overall credit rating for the company to BBB, S&P said Wednesday. That is only two steps above junk bond status, and another sign of how far GE has fallen over the past decade. It was only 12 years ago that GE had the top of the scale AAA credit rating, a sign of financial muscle that few companies are able to achieve.
GE also warned investors it expects to make between 15 cents a share to 25 cents a share in earnings this year. That’s lower than the consensus forecast of a 26-cent profit. Shares of GE were down 5% in Wednesday morning trading on news of the deal and its new guidance.
