GE Gives A Push to Aviation Business -- WSJ
June 20 2017 - 3:02AM
Dow Jones News
More jets are ordered at the Paris Air Show, and joint venture
aims for airline deals in Asia
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 on Monday agreed
to buy 120 more Airbus SE and Boeing Co. jets at the open of the
Paris Air Show to add to its fleet of 1,270 owned aircraft. It also
agreed to form a partnership 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 is now an opportunity for the unit to target
"modest growth" and expand its previous 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. "Our order book is going to go up to
historical levels."
On Monday, Gecas announced a deal for 100 more Airbus A320neo
jets and 20 of the new Boeing 737 Max 10 aircraft formally launched
at the Paris show.
While Gecas has shrunk its assets to about $41 billion, it is
also increasingly important for GE's cash flow because the
conglomerate has sold finance assets such as banks and
consumer-lending operations after the financial crisis. The venture
attracts increased scrutiny from mainstream investors now.
"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 sizable 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 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 is powered by GE engines -- including planes
ordered Monday -- 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, who
added that the Canadian company was entering the business for the
long haul.
The planned joint venture would 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
(END) Dow Jones Newswires
June 20, 2017 02:47 ET (06:47 GMT)
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