Reducing the Debt
The sale provided General Electric with a 46% stake in the new company and around $24 billion in cash. The deal will help GE pay off around $30 billion of its debt and help the company mitigate risks to allow it to stay a well-capitalized company.
GE stock initially rose over 4% once media outlets broke the AerCap-GE merger story to trade over 11% higher in March.
“This deal brings GE closer to our future—delivering value for the long term and leading the energy transition, precision health, and the future of flight,” said Lawrence Culp, the CEO of the company.
Both GE and AerCap are important clients of Boeing and Airbus, and the combined company is now the largest jet lessor in the world, allowing it to fight for better jet prices. Jet lessor companies account for around 50% of more than 22,000 single and twin-aisle commercial aircraft.
As of the end of last year, GE had serviced or ordered more than 1,600 aircraft and held $35.86 billion in assets under management (AUM). On the other hand, AerCap had, serviced or ordered about 1,330 jets as of the end of 2020, including $42 billion in assets, according to regulatory filings.
Under the terms of this business deal, $34 billion in net assets, including engine and helicopter leasing units, are set to be transferred to AerCap as well as buy obligations of over 400 staff. GE will have the right to nominate two executives to sit on AerCap’s board.
"We would view such a combination as a 'win-win' for both parties, offering substantial synergies and market leading position for AerCap, and could represent a further simplification of GE's portfolio and shrinkage of GE Capital, which investors would welcome," said Julian Mitchell, a Barclays analyst.
On the other hand, Gordon Haskett analyst John Inch believes the GE might be selling its jet-leasing business unit at a time when its value is somewhat lower as coronavirus vaccine rollouts give rise to expectations of a return to more frequent air travel later this year.
GE stock soared over 150% since May last year after the pandemic-driven selloff resulted in hitting the lowest levels since 1992.
GE stock rose after the company agreed to sell its aircraft leasing business to rival AerCap for $30 billion in a deal that will create the largest jet lessor in the world.
About the Author
Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.