Reports this weekend indicate that GE may merge its aircraft leasing unit with AerCap, as GE continues its corporate restructuring. That would create an extremely large and powerful aircraft lessor, but GE’s aircraft engine operations might lose the benefit of GECAS as a marketing tool when it negotiates engine deals with customers.
GECAS has worked behind the scenes as a finance option for GE Aircraft Engines and its joint venture partner CFM and typically focused on deals that include GE rather than competitive engines. In certain competitive situations, the ability to provide financing to a customer has been an advantage that competitors like Rolls-Royce and Pratt & Whitney could not provide.
We can think of several situations that we are aware of in which the choice of an engine came down to financing terms, whether on a 787 in competition with Rolls-Royce or with Pratt & Whitney on an A321neo. In a world without a collaborative GE finance option, the playing field may become more leveled, as GE loses a corporate advantage.
The strategic decision to move forward to sell a once profitable unit was likely made some time ago as the restructuring strategy was contemplated, but has likely been influenced by current market conditions that result from the pandemic. The question we have is why now, given the impact the pandemic is having on the industry?
Many aircraft have been grounded and residual values have fallen given the impact on airline operations worldwide and continuing border closures negatively impacting wide-body aircraft. While we also see the “light at the end of the tunnel” through herd immunity and vaccinations, we don’t expect that leasing economics will rapidly return to pre-pandemic conditions for another few years. To conclude a deal at this time would appear to require an adjustment in value given the pandemic, which can’t be favorable to the seller.
What impact might this have on future GE sales? Deals that include the LEAP, GEnx, and GE9X that had GE Capital financing as an option will now lose the advantages it once brought. Whether this will cost potential sales in the future remains unknown, but no longer having a “captive” finance option likely won’t have the GE Aviation team dancing in the streets of Cincinnati today.
