In terms of big news that took place over the weekend, perhaps the biggest development came from one of America’s oldest companies. General Electric (NYSE: GE) is closing in on a potential $30 billion deal to combine its aircraft-leasing business segment with another similar business based out of Ireland, AerCap (NYSE: AER). According to some estimates, the deal is expected to be worth over $30 billion, one of the largest in the airline-leasing industry.
While most people aren’t familiar with the full story behind General Electric’s many different business segments, the company has its own division called GE Capital, once a pretty large lending operation comparable to some of the major retail banks. While things were going well for a while, the company quickly fell onto hard times during the 2008 financial crisis when it almost went out of business. Since then, GE has said that it’s planning to get out of the lending business altogether.
In that regard, this deal marks just one more step in the process of GE restructuring it’s old, struggling businesses. It’s just that this particular deal has to do with GE’s aircraft lending business. The company owns around 1,600 aircraft, making it one of the world’s largest jet-leasing companies. However, demand hasn’t been that high, especially since the travel sector has seen significant declines in demand thanks to the coronavirus.
Between GE’s own jetliner lending business as well as the AerCap business, the total combined entity would be worth over $30 billion. The idea is that by combining these two businesses together, it would let both firms save money and find cost-cutting opportunities where their businesses overlap. However, it’s still uncertain whether or not this new combined business of GE’s will be able to weather the current aviation market.
Over the long-term, General Electric has struggled to remain relevant. Looking at the past 20 years, shares have declined by over 75%. However, the past six months have seen GE stage a pretty strong comeback, more than doubling these past few months thanks to stronger than expected financial results. While selling off this jetliner lending business could help GE’s balance sheet even more, it’s hard to be bullish on General Electric when there are so many other companies out there that could be more exciting investments right now.
General Electric Company Profile
GE was formed through the combination of two companies in 1892, including one with historical ties to American inventor Thomas Edison. Today, GE is a global leader in air travel, precision health, and in the energy transition. The company is known for its differentiated technology and its massive industrial installed base of equipment sprawled throughout the world. That installed base most notably includes aerospace engines, gas and steam turbines, onshore and offshore wind turbines, as well as medical diagnostic and mobile equipment. GE earns most of its profits on the service revenue of that equipment, which is generally higher-margin. The company is led by former Danaher alum Larry Culp who is leading a multi-year turnaround of the storied conglomerate based on Lean principles. – Warrior Trading News
