General Electric Co. agreed to sell its jet-leasing business to rival AerCap Holdings NV, bringing together the world’s two biggest aircraft financiers in a deal that’s poised to reshape a market already roiled by the coronavirus pandemic.

Under the deal, valued at more than US$30 billion, GE will receive US$24 billion in cash plus 111.5 million shares, equivalent to a 46 per cent equity stake in the combined entity, according to a statement Wednesday. GE will get an additional US$1 billion from AerCap in either cash or debt when the transaction closes.

The tie-up gives rise to a behemoth lessor after a year in which the pandemic has hammered aviation and prompted airlines worldwide to cancel jet orders, delay deliveries and defer lease payments. The deal also signals the end of GE Capital, the company’s once-mighty finance unit, the remnants of which will be folded into the broader corporate balance sheet. The effect will be to “de-risk” the company, said GE Chief Executive Officer Larry Culp.

“This marks the transformation of GE into a far more focused, simpler and stronger company,” Culp said in an interview. “This is going to give us an opportunity to focus fully on our four industrial businesses.”

GE tumbled 6.4 per cent to US$13.11 at 9:52 a.m. in New York after sliding as much as 6.9 per cent for the biggest intraday drop in five months. The company also reiterated its earnings outlook for 2021, which fell short of Wall Street’s expectations. AerCap sank 8.1 per cent to US$51.45.

For AerCap, the deal positions the company for an industry rebound as expanding vaccination campaigns prompt people to fly again after last year’s unprecedented drop in travel demand. With the acquisition, AerCap would own and manage a portfolio of more than 2,000 planes, about 60 per cent of which are narrow-body aircraft. The company would have an order book of about 500 latest-generation jets.

“It is clear that we have bought the right business at the right time for the right price,” AerCap CEO Aengus Kelly said on a conference call. “And critically, we are teaming up with the right partners.”

AerCap’s US$24 billion committed financing from Citigroup Inc. and Goldman Sachs Group Inc. ranks as the second-largest loan globally so far this year, after Verizon Communications Inc’s US$25 billion obtained last month, according to data compiled by Bloomberg. The large-sized deal could help boost global loan issuance which has suffered a 42 per cent slump year-on-year.

Reverse Split

Separately, GE maintained its 2021 financial forecast, predicting adjusted earnings of 15 to 25 cents a share. That trailed the 26-cent average of analyst estimates compiled by Bloomberg.

In addition, the company said its board would recommend a reverse stock split at a ratio of 1-for-8 and a “corresponding proportionate reduction in the number of authorized shares.”

Offloading GE Capital Aviation Services, or Gecas, is the splashiest deal yet for Culp, who took the helm in 2018 with a mandate to rescue the U.S. industrial icon. He has shed assets to slim down the unwieldy conglomerate, giving the stock a boost after a corporate meltdown that wiped out hundreds of billions of dollars in market value.

What Bloomberg Intelligence Says

General Electric’s sale of its GECAS aircraft-leasing unit, in combination with other cash sources, will enable US$30 billion in debt reduction and substantially address the company’s stressed financial condition on an accelerated timeline. A 46 per cent ownership stake in the combination with AerCap will let GE participate in a gradual commercial aerospace recovery.

--Karen Ubelhart and Christina Constantino, industrial analysts

The Boston-based company plans to use proceeds of the sale to cut debt by about US$30 billion, for an expected total reduction of more than US$70 billion since the end of 2018. The deal is expected to close in nine to twelve months, and Gecas’s more than 400 employees will transfer to AerCap.

GE will take a US$3 billion noncash charge on the deal in the first quarter. The company may be cut by S&P Global Ratings due to the consolidation of GE Capital’s financials.

GE Dealmaker

The transaction “will enable us to significantly de-risk GE and continue on our path to being a well-capitalized company,” Culp said in the statement. “GE gains both cash and a meaningful stake in the stronger combined company, with flexibility to monetize as the aviation industry recovers.”

Last year, GE completed the sale of its bio-pharmaceutical business to Culp’s former employer, Danaher Corp., for US$21.4 billion. In 2019, the company agreed to sell an aircraft-financing business for US$3.6 billion to Apollo Global Management and Athene Holding Ltd. as the ailing manufacturer slimmed down its once-vast lending arm.

The expanded AerCap-Gecas lessor will gain negotiating leverage with manufacturers like Boeing Co. and Airbus SE, and is likely to get antitrust scrutiny from authorities and stakeholders. The new company also would be able to focus on the strongest airline customers during the pandemic recovery, when many will rely on lessors for financing flexibility.

“A potential combination of No. 1 and No. 2 in any market is usually reason enough for regulators to scrutinize a deal, but it doesn’t necessarily mean that regulators won’t approve it or that significant concessions will be required,” said Aitor Ortiz, an antitrust analyst at Bloomberg Intelligence, said before the deal was announced. “The fact that the airline industry is facing turbulence right now may be considered in the analysis.”

The deal elevates the profile of Kelly, AerCap’s hard-charging CEO. He emerged on the global stage in 2014 with AerCap’s US$7.6 billion acquisition of leasing pioneer ILFC from American International Group.

AerCap, based in Dublin and listed on the New York Stock Exchange, had a market value of US$6.6 billion on March 5, before reports of the GE talks.

--With assistance from Jacqueline Poh, Elizabeth Rembert and Aoife White.