Harsh Restructuring at GE, Exiting Aircraft Leasing Business as Well

Source: WSJ

[Asia Economy Reporter Yujin Cho] General Electric (GE) of the United States, which has been undergoing intensive restructuring, has decided to exit the aircraft leasing business due to the impact of the COVID-19 pandemic. The company has been pursuing restructuring measures close to dismantling the group for several years to reduce its oversized body, which had grown through a sprawling expansion strategy in the past.

According to the Wall Street Journal (WSJ) and others on the 10th (local time), US GE announced that it sold GE Capital Aviation Services (GECAS), the aircraft leasing division of its financial subsidiary GE Capital, to rival company AirCap. The sale amount is approximately $30 billion (about 34.3 trillion KRW), and the transaction will be finalized in 15 months. The sale price will be received as $24 billion in cash (about 27.4 trillion KRW) and a 46% stake in the merged company of GECAS and AirCap.

GECAS is a core and profitable division of GE Capital, generating more than half of last year's revenue of $7.25 billion. Based on its fleet of 1,600 aircraft, it is the world's largest aircraft leasing company, focusing on leasing and financing businesses including passenger and cargo aircraft, engines, helicopters, and various equipment.

Credit rating agencies have expressed differing views on this sale. Moody's stated that the deal did not increase GE's overall financial risk, while S&P said that after the transaction, GE's credit rating would be lowered to 'BBB (Triple B),' just above junk status. Concerns over this sale caused GE's stock price to plunge 5.36% to close at $13.25 on the day.

This sale is part of efforts to reduce debt. US economic media CNBC interpreted this as an attempt to reduce debt burdens amid the global aviation industry's struggles due to the COVID-19 pandemic.

As of the end of last year, GE's total debt was $75 billion, with more than $50 billion tied up in GE Capital. The company plans to use the $30 billion raised from this sale, combined with existing cash reserves, to repay GE Capital's debt. Larry Culp, GE's CEO, said, "We will use the $30 billion inflow from this sale to pay down debt."

CEO Culp added, "This is the right time to accelerate our transformation further," and said, "With this move, we have significantly reduced the company's risk and can continue on the path toward a company with a strong capital position."

Following the sale of GECAS, the remaining GE Capital businesses, such as insurance, are also expected to be divested. GE Capital was once the 'lifeline' generating more than half of the entire GE group's revenue but became a 'bad asset' after suffering irrecoverable losses from the subprime mortgage crisis.

Founded in 1892 by Edison as an electrical consumer goods business, GE grew into the world's largest manufacturer by venturing into almost every field that could be electrified, including home appliances, medical devices, aircraft and automobile engines, and nuclear power plants. However, as poor performance intensified due to the backlash from its sprawling expansion strategy, harsh restructuring of core businesses, including the iconic electrical consumer goods division, has been ongoing for several years.

This content was produced with the assistance of AI translation services.