GECAS has for a long time been rumoured to be up for sale.
FlightGlobal can confirm that banks were approached at the start of the summer regarding a sale of GECAS. One banker adds that he couldn't at the time "realistically" think of an entity that could purchase the whole portfolio.
GECAS, which was established to provide support to the engine manufacturing arm of GE, lost access to cheap capital when GE sold its bank, making it more expensive to finance the leasing company's operations and capital expenditures. In April 2015, GE announced the GE Capital Exit Plan.
Since that point, GE Capital has shrunk by nearly 70% over the past three years, from $500 billion in 2014 to $155 billion in the third quarter this year, as assets were sold off.
GECAS itself has shrunk its commercial aircraft portfolio value by 27% during the past five years, FlightGlobal data indicates. In 2012, the company had a portfolio value of $34.1 billion, while today it's worth $25 billion.
In GE's third-quarter filing released 20 October, the company reports the GECAS assets at $38.9 billion, but this includes its engine and helicopter portfolios.
GE has a few options to deal with GECAS: spin off the portfolio, sell it, or to keep it.
A spin-off, which would take approximately nine months, is probably GE's quickest and most sure option for disposing of GECAS.
In a GECAS spin-off, based on a 65% LTV, the company would give $9 billion of equity to GE shareholders. This is what GE Capital did with Synchrony Financial, its consumer financial business, in 2015.
There have been at least seven spin-offs of companies worth more than $20 billion since 2008, according to Securities Data Company.
Alternatively, GE could look to sell the whole leasing platform or select asset "packages".
A major impediment to AerCap or Air Lease acquiring GECAS is that the large amount of stock needing to be issued to buy GECAS at a market, CIT-like acquisition multiple would likely dilute buyer's shareholders too significantly, says one industry source.
Also, AerCap is currently buying back stock, which suggests that the company believes its stock is better value than buying aircraft at the moment.
More likely is that GECAS continues its trend of been paring down its overall assets by regularly trading aircraft portfolios, whether to Chinese investors or other lessors, or selling aircraft into sidecars and asset-backed securities.
For instance, GECAS closed a $2 billion sidecar with Canadian pension fund CDPQ. In addition to taking an equity stake, GECAS will earn a fee for managing the aircraft.
The Connecticut-based lessor also closed an ABS, Labrador, last year, selling the equity and debt to Korean investors. Now, as FlightGlobal reported in October, the company is looking at doing an securitisation with US hedge fund Och-Ziff, which will manage an equity note purchased by a pool of investors, FlightGlobal understands from people involved with the deal.
Meanwhile, GE could decide to keep GECAS, moving to a management scheme like BBAM. Already the lessor has been increasing its managed portfolio from 3.4% of its fleet in 2012 to 9.8% in 2016. With its full servicing and asset management business, GECAS would pick up management fees while not retaining any exposure to the asset.
For now, a combination of asset sales and picking up management fees seems more likely than an outright platform sale.
Source: Cirium Dashboard
