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GENERAL ELECTRIC COMPANY (GE)

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GE Plans $2 Billion Joint Venture to Build Its Jet-Leasing Business

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06/19/2017 | 11:45am CEST
By Doug Cameron 

General Electric Co. plans to resume growing its big aircraft-leasing business, ordering more jets and sealing a $2 billion joint venture that will allow it to do additional business with fast-growing airlines in Asia.

The company's GE Capital Aviation Services unit will order more Airbus SE and Boeing Co. jets at this week's Paris Air Show to add to its fleet of 1,270 owned aircraft and partner with Canada's Caisse de dépôt et placement du Québec in a new venture to acquire narrow-body jets for renting to airlines.

Gecas, as the business is known, is the world's largest jet lessor but has shrunk over the past two years by selling aircraft just as rivals including AerCap Holdings NV and China's Bohai Leasing have significantly expanded their operations.

Rising aircraft delivery rates have attracted new investors to the industry, notably from Asia, but Gecas Chief Executive Alec Burger said there was now an opportunity for the unit to target "modest growth" and expand its existing order book of 318 aircraft.

"We're in an industry where there's more capital and planes than management teams [to handle them]," Mr. Burger said in an interview on the eve of the air show.

While Gecas has shrunk its assets to around $41 billion, it is also increasingly important for GE's cash flow as the conglomerate sold finance assets such as banks and consumer lending after the financial crisis, attracting increased scrutiny from mainstream investors.

"In our conversations with investors, we find Gecas is generally misunderstood and underappreciated," said Barclays analysts in a note to clients last week.

Mr. Burger, a GE veteran, previously oversaw the reduction of the company's big real estate portfolio, prompting speculation he would then shrink the aircraft business. Gecas promptly sold dozens of aircraft and slowed new orders, but Mr. Burger said this reflected attractive sale prices and regulatory constraints as GE reduced its wider broader finance portfolio.

The unit is now the largest in GE Capital and supports the company's larger aircraft engine and services portfolio. Some 85% of its aircraft fleet are powered by GE engines, with much of the repair work steered back to the company.

Caisse de dépôt, an infrastructure specialist, has been examining a move into aircraft leasing for several years because of the attractive yields on offer, said Chief Executive Michael Sabia.

The surge of new money entering the industry has since intensified competition for deals such as sale leasebacks, where lessors acquire aircraft from airlines and then rent them back to the carrier.

"Short-term pressures are probably there," said Mr. Sabia, adding that the Canadian firm was entering the business for the long haul.

The planned joint venture will acquire narrow-body aircraft, the most popular segment of the market, and some deals could be split with existing Gecas operations.

Mr. Burger said this would allow Gecas to take advantage of opportunities in China, India and elsewhere in Asia without breaching existing airline and country risk limits.

Write to Doug Cameron at doug.cameron@wsj.com

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Financials ($)
Sales 2017 126 087 M
EBIT 2017 17 742 M
Net income 2017 12 802 M
Debt 2017 79 456 M
Yield 2017 3,50%
P/E ratio 2017 18,96
P/E ratio 2018 15,81
EV / Sales 2017 2,53x
EV / Sales 2018 2,24x
Capitalization 239 243 M
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Mean consensus OUTPERFORM
Number of Analysts 17
Average target price 32,1 $
Spread / Average Target 17%
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Jeffrey R. Immelt Chairman & Chief Executive Officer
Shane Fitzsimons Senior Vice President-Global Operations
Jeffrey S. Bornstein Vice Chairman & Chief Financial Officer
Jim Fowler Chief Information Officer
Victor Abate Chief Technology Officer & Senior Vice President
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