GE dismantles the business that ended its dominance a decade ago
General Electric is selling off its aircraft leasing business, closing the books on its once mighty GE Capital unit, the financial arm of the company that was once its largest business and one of the world’s most dominant financial institutions.
GE is selling the aircraft leasing business known as GECAS to rival AerCap, an Ireland-based company that will become by far the largest company in that industry with an estimated 25% to 30% share of the market. GE will receive $24 billion in cash and stock that will give it about a 46% stake in the combined company.
The company plans to use proceeds to reduce its debt by about $30 billion, part of a multi-year effort to slash $70 billion of debt from its balance sheet. It is the latest and among the most dramatic steps to reshape and slim down the now struggling company.
GECAS, which buys aircraft and leases them to airlines and other operators, had been providing most of the revenue for the GE Capital unit. But sales fell about 20% last year as the Covid-19 pandemic caused a plunge in air travel and massive losses across the airline industry. GECAS’ cash-starved airline customers paid only about 84% of the unit’s invoices in 2020. It resulted in a $786 million loss for 2020 after a $1 billion profit in 2019.
After the deal, GE Capital will no longer be a separate unit of General Electric. Its remaining business — Energy Financial Services (EFS) and an insurance business which was already being wound down, will be reported as part of its corporate operations.
“Today marks GE’s transformation to a more focused, simpler, and stronger industrial company,” said GE CEO Larry Culp, who just two years ago told investors the company had “no plans to sell GECAS.”
End of an era
The effective end of GE Capital is the end of an important era for the former conglomerate.
The company has been trying to become leaner and more profitable in recent years, selling off its appliance business in 2016, its NBC Universal entertainment unit in 2011 and its light bulb business in 2020, among other businesses.
Although those businesses had a higher public profile than GE Capital, no business was more important to the conglomerate during its heyday than GE’s finance arm. It provided financing on many of its industrial products, such as jet engines and electric power plants. And it was an important source of financing for small business and consumers. It even became a major player in the subprime mortgage business.
But with the housing bubble bursting and the meltdown in financial markets that followed in 2008, no part of the GE business was hurt more than GE Capital, and what had once been a driver of the company’s success became an albatross. GE sold off most of the real estate and other assets from GE Capital in 2015 and has been trying to exit its business step by step.
The company also warned investors it expects to make between 15 cents a share to 25 cents a share in earnings this year. That’s less than the consensus forecast of a 26-cent profit. Shares of GE were down 5% in Wednesday morning trading on news of the deal and its new guidance.
