AerCap to buy General Electric leasing unit for $30bn

May 2021 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

May 2021 Issue

AerCap Holdings N.V. has agreed to acquire the jet leasing business of rival General Electric in a deal worth $30bn.

Under the terms of the agreement, which has been unanimously approved by the boards of directors of AerCap and GE, GE will receive 111.5 million newly issued AerCap shares, $24bn in cash and $1bn worth of AerCap notes or cash. AerCap has secured $24bn in committed financing from its banking group to support the closing of the transaction.

GE is expected to own approximately 46 percent of the combined company and will be entitled to nominate two directors to the AerCap board of directors. The deal is expected to complete in the fourth quarter of 2021. The combined company is expected to generate $7bn in annual revenue and $5bn of operational cash flow, according to AerCap.

The unit, GE Capital Aviation Services (GECAS), is a part of GE Capital, and once the deal has been completed, GE Capital will be folded into General Electric’s larger corporate structure, no longer broken out as a separate unit in financial reports. GE said it would reduce its debt by about $30bn after the transaction closes using proceeds from the deal and existing cash. The company said it would take a $3bn charge in the first quarter of 2021.

“We are excited about this opportunity to bring together two leaders in aviation leasing,” said Aengus Kelly, chief executive of AerCap. “AerCap and GECAS both have industry-leading teams, attractive portfolios, diversified customer bases and order books of the most in-demand new technology assets. This combination will enhance our ability to provide innovative and attractive solutions for our customers and will strengthen our cash flows, earnings and profitability.

“GECAS is a highly attractive business and this transaction continues our strong track record of capital allocation. As the recovery in air travel gathers pace, this transaction represents a unique opportunity that we believe will create long-term value for our investors,” added Mr Kelly. “This business combination will also strengthen our longstanding partnership with GE Aviation, which we look forward to working with closely in the future.”

“AerCap is the right partner for our exceptional GECAS team,” said H. Lawrence Culp Jr, chairman and chief executive of GE. “Combining these complementary franchises will deliver strategic and financial value for both companies and their stakeholders. Together we’re creating an industry-leading aviation lessor with expertise, scale and reach to better serve customers around the world, while GE gains both cash and upside in the stronger combined company as the aviation industry recovers.

“This is the right time to further accelerate our transformation,” he added. “This action will enable us to significantly de-risk GE and continue on our path to being a well-capitalized company. Building on our multi-year efforts to solidify our financial position, we expect to use the proceeds to further reduce debt for a total reduction of more than $70 billion since the end of 2018.”

The deal is a significant one for the jet leasing business, creating easily the largest buyer of jetliners built by plane manufacturers Airbus and Boeing, and will reshape a global air finance industry that has attracted a flood of capital in recent years as investors look for higher returns.

According to the companies, the newly combined corporate entity will boast more than 2000 owned and managed aircraft, over 900 owned and managed engines, over 300 owned helicopters and approximately 300 customers around the world. GE said $34bn in net assets, including engine and helicopter leasing businesses, would be transferred to AerCap along with purchase obligations and more than 400 employees.

The GECAS unit reported a $786m loss in 2020, down from a $1.03bn profit in 2019, according to GE’s annual report, as the COVID-19 pandemic bit. AerCap posted a net loss of nearly $299m last year, down from a profit of more than $1.1bn in 2019, though it had a profit of $28.5m in the fourth quarter.

Richard Summerfield