In a transaction worth more than $30 billion, General Electric is combining its aircraft leasing business with Ireland’s AerCap Holdings, marking a significant move forward, in what has been a six-year plan to reshape the once-global conglomerate.
The global pandemic sent shockwaves across the airline industry, and the agreement reached on Wednesday, might have far-reaching consequences. If beleaguered airlines decide not to buy planes, it could put more pressure on plane manufacturers like Boeing and Airbus. If airlines can cut near-term costs through leases, it could give them some breathing room as a result of falling air travel.
The agreement to spin off GE Capital Aviation Services, or GCAS, takes GE closer to its target of spinning off much of its large financial arm, which nearly bankrupted the company during the 2008 financial crisis. AerCap to pay about $24 billion in cash for GCAS, while GE will own about 46% of the combined business and receive $1 billion in AerCap notes or cash at closing.
GE also reported on Wednesday that its board of directors would propose that shareholders accept a 1-for-8 reverse stock split and a proportionate reduction in the number of authorised shares of common stock.
GE expects to use acquisition proceeds and existing cash sources to reduce its leverage by around $30 billion after the deal closes. This would bring the country’s overall debt reduction to more than $70 billion since the end of 2018. When the deal closes, the majority of GE Capital, including Energy Financial Services and its run-off insurance activities, will be transferred to GE Corporate. As part of the shareholders’ agreement, GE will be able to appoint two directors for newly formed seats on AerCap’s board. The agreement is scheduled to close in nine to a year. AerCap shareholders would also approve it.
