GE Nears to Combine Aircraft Rental Unit with AerCap

General Electric Co. is approaching a $ 30 billion deal to combine its aircraft rental business with Irish AerCap AER 1.62% Holdings NV, according to people familiar with the matter, the latest in a series of industrial conglomerate moves around its one-off vast operations.

Ticker	Safety	Last	Alter	Alter%
GE	GENERAL ELECTRICAL CO., LTD.	13.60	+0.03	+ 0.22%
AER	AERCAP HOLDINGS NV	50.80	+0.81	+ 1.62%
AIRPA	after	after	after	after
HON	HONEYWELL INTERNATIONAL, INC.	206.58	+3.64	+ 1.79%

Some people said that the details of how the transaction would be structured could not be learned. An announcement is expected Monday, assuming the talks do not fall apart.

The GE GE 0.29% unit, known as GE Capital Aviation Services, or Gecas, is the largest remaining piece of GE Capital, a once-extensive lending industry that competes with the largest U.S. banks but nearly sank during the financial crisis of 2008. GE had already taken an important step back from the lending business in 2015 when it said it would leave most of GE Capital, and an agreement for Gecas would represent another major step in that direction.

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It will also be another important step for GE CEO Larry Culp to rectify the course of a company that has suffered in recent years by souring the prospects for some of its top business lines and ‘ a structure that has fallen into disfavor with investors.

With more than 1,600 aircraft owned or commissioned, Gecas is one of the world’s largest aircraft leasing companies, along with AerCap and Air Lease Corp., based in Los Angeles. He leases passenger aircraft made by Boeing Co. and cargo planes to customers, ranging from airlines to take-off. Cecas had $ 35.86 billion in assets on December 31.

According to S&P Capital IQ, AerCap has a market value of $ 6.5 billion and an enterprise value – adjusted for debt and cash – of approximately $ 34 billion, and approximately 1,400 aircraft owned or ordered. The company has experience in making transactions and in 2014 paid approximately $ 7.6 billion to the International Lease Finance Corp. AerCap’s revenue for sale last year was approximately $ 4.4 billion, compared to $ 5 billion in the previous few years.

The airline was hit hard by the Covid-19 pandemic, which led to a sharp decline in world travel and prompted the airlines to land aircraft. Some airlines have tried to defer rental payments or purchases of new aircraft. Gecas has an operating loss of $ 786 million in revenue of $ 3.95 billion in 2020. GE took a write-off of approximately $ 500 million on the value of its aircraft portfolio in the fourth quarter.

The combination of companies can afford savings opportunities and help the new entity withstand the downturn.

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The separation of Gecas could help GE with its efforts to sharpen its balance sheet and improve cash flow. Despite a recent rise, GE’s share price remains lower than it was before significant problems arose in the company’s power and finance units in recent years.

The Boston company has a market value of about $ 119 billion after the shares more than doubled in the past six months because they achieved better results. The share has nevertheless fallen by about three-quarters since its peak just over 20 years ago.

Mr. Culp will become the first outside CEO of GE at the end of 2018, after the company was forced to reduce its dividend and sell businesses. The former boss of Danaher Corp has sought to further simplify GE’s wide conglomerate structure, as have other industrial giants such as Siemens AG and Honeywell International Inc. have done in recent years.

Activist investor Trian Fund Management MP, who has held a significant position in the company since 2015 and holds a seat on its board, has supported such changes.

Early in his tenure, Mr. Culp said he has no plans to sell Gecas, a move his predecessor John Flannery was considering after the unit attracted interest from private equity firms that pushed the lease further.

Mr. Culp sought to equalize cash flow and focus on core areas. The operations he separated include the company’s biotechnology business, which was acquired by Danaher in a $ 21 billion deal closed last year. GE also sold its iconic light bulb business in a much smaller deal last year, previously saying it had a majority stake in oilfield services firm Baker Hughes Co.

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GE has cut overhead costs and jobs in its aircraft engine unit while streamlining its power business. However, the pandemic is still putting pressure on the aircraft automotive industry, the largest division of GE.

The company also makes healthcare machines and power generation equipment, and the rest of GE Capital provides loans to help customers buy its machines and also includes insurance assets.

AerCap is based in Ireland and is also headquartered in Gecas. The aircraft rental industry has long been in Ireland due to the favorable tax regime of the country and the importance of Guinness Peat Aviation in the development of the sector. (An agreement between GE and AerCap will merge two companies that bought their core assets from GPA.) However, the industry has become more competitive as Chinese companies gain market share, and the combination could help the new group stem the tide.

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Shares in aircraft rental companies fell along with much of the market in the early days of the pandemic as demand from major airlines, who rent aircraft to avoid its costs, evaporated. However, many of the major landlords’ shares were lost, and then also in the months that followed, as the closure eased and the prospects for travel improved.

AerCap CEO Aengus Kelly said during his fourth-quarter earnings call this month that he expects airlines to move more to charter aircraft as they rebuild their balance sheets, which will bless the company and its peers.

“Their appetite for using large amounts of scarce capital on aircraft purchases will remain subdued for some time,” he said. “The priority is to repay debt or government subsidies.”

–Thomas Gryta contributed to this article.