AerCap Holdings Acquires GE Capital Aviation Services: What Investors Need To Know

Ireland’s AerCap Holdings N.V. AER has acquired GE Capital Aviation Services, a General Electric GE business, in a transaction involving $24 billion of cash, $1 billion of AerCap notes and/or cash and 1.1 billion newly issued AerCap shares.

What Happened: AerCap is an aircraft leasing company serving roughly 200 customers in approximately 80 countries, while GE's aviation services business is an aviation lessor and financier that owns, services or has on order approximately 1,700 aircraft. The GE business serves more than 200 customers in 75 countries from a network of 15 offices around the world.

According to the companies, the newly combined corporate entity will boast more than 2,000 owned and managed aircraft, over 900 owned and managed engines, over 300 owned helicopters and approximately 300 customers around the world.

Upon completion of the transaction, GE is expected to own approximately 46% of the combined company and will be entitled to nominate two directors to AerCap’s board of directors.

Why It Happened: When the transaction concludes, GE said it will use the transaction proceeds and its existing cash sources to reduce its debt by approximately $30 billion.

GE Chairman and CEO H. Lawrence Culp Jr. said the sale offers the company a new shot of vibrancy.

“This is the right time to further accelerate our transformation,” he said in a press statement. “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.”

BofA's Take On The GE Deal: GE "plans to consolidate GE Capital with GE Industrial. GE has been shrinking GE Capital for several years. This final step is logical, with the GECAS merger timing also making sense," Andrew Obin, research analyst with BofA Securities, said in a note.

"Post-consolidation of GE Capital, management projects year-end 2021 GE Industrial net debt to rise to ~$51bn versus $32.3bn at 4Q20-end," the analyst said.. "However, rising EBITDA levels should leave GE Industrial net-debt-to-EBITDA at ~6x (versus 5.9x at 4Q20-end). The consolidation may impact GE Industrial's credit rating."

AER, GE Price Action: GE shares were trading down 6.64% to $13.07 at last check Wednesday, while AerCap shares were down 8.36% at $51.30.

Photo courtesy of GE.