Monday, June 19, 2017

GE Returns Jet-Leasing Unit to Growth Mode: Capital Aviation Services also plans to order more Airbus and Boeing aircraft



The Wall Street Journal
By Doug Cameron
Updated June 19, 2017 8:01 a.m. ET

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.

Original article can be found here:  https://www.wsj.com

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