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General Electric Gains, Apollo Considers a Bid for GECAS Assets

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Jan. 7 2019, Published 1:07 p.m. ET

General Electric shares

General Electric (GE) shares rose ~3.8% during after-hours trade on January 4. Bloomberg reported that private equity firm Apollo Global Management is working on an offer to bid for General Electric’s aircraft leasing operations. However, citing anonymous sources, Bloomberg said that General Electric hasn’t agreed to a deal with Apollo yet.

Under General Electric’s jet-leasing operations, GECAS (GE Capital Aviation Services), the company provides planes to airlines on long-term leases. Currently, GECAS has a fleet of over 1,900 aircraft. According to Bloomberg’s report, the business unit is valued at $40 billion. The company’s GECAS business is a unit of General Electric’s capital segment.

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Apollo’s bid for GECAS has come at a time when General Electric CEO Larry Culp is speeding up the restructuring process. The restructuring process includes divesting and spinning off certain assets to lower debt, enhance liquidity, and restore profits. General Electric reported a loss of $22.8 billion in the third quarter. General Electric ended the quarter with a debt of $115 billion on its balance sheet. The company reported negative free cash flows in all three of the quarters in 2018.

If the deal materializes between General Electric and Apollo, it could help General Electric drastically lower its debt. However, Culp will have to decide on Apollo’s offer. GECAS is one of General Electric’s profitable and fast-growing business units. GECAS complements General Electric’s aviation business segment, which is the company’s most profitable segment.

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Restructuring initiatives

General Electric has focused on divestment and spin-off options to optimize its business, strengthen the balance sheet, and shore up cash. In November, General Electric divested its current business unit, sold $4 billion worth of its stake in Baker Hughes (BHGE), and sold $1.4 billion worth of its healthcare equipment finance portfolio. In December, General Electric filed for an IPO for its healthcare unit.

Although the restructuring initiatives are at a very nascent stage, the pace at which Culp has been implementing them has helped the stock gain investor and analysts’ confidence in the past month. Major research firms including JPMorgan Chase (JPM) and Vertical Research upgraded their ratings on the stock in December.

In 2018, General Electric stock was the worst performer in the industrial sector (XLI) due to concerns about its severe liquidity crisis, increasing losses, and negative cash flows. The stock lost 56.6% of its value in 2018. Honeywell International (HON) and United Technologies (UTX) shares fell 5.6% and 6.4%, respectively.

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