Monday 23 July 2018

Gecas IPO would be 'no man's land', says Burger

Alec Burger, CEO of GE Capital Aviation Services (GECAS)
Alec Burger, CEO of GE Capital Aviation Services (GECAS)
John Mulligan

John Mulligan

A partial stock market flotation of aircraft leasing giant Gecas would leave the company in a "no man's land" and would be an unlikely option for the business, according to its CEO.

In an interview with the Irish Independent, Alec Burger downplayed speculation that an initial public offering (IPO) of the aircraft-leasing group - which tussles with Dublin-based Aercap for the title of the world's biggest - would make sense. Aercap, which is listed on the New York Stock Exchange, has a market capitalisation of $8.6bn (€7bn).

An IPO of the profitable Gecas leasing unit - a jewel in owner GE's crown - is among the eventualities that it's been speculated the group could pursue as its CEO, John Flannery, ponders a possible break-up of the huge conglomerate.

Just last week, analysts were still predicting that a partial IPO of Gecas remained a strong likely option for GE.

GE revealed last week that it will shoulder an adjusted $7.5bn (€6.1bn) after-tax charge in relation to its legacy insurance business.

The group, which releases fourth-quarter results today, will make statutory reserve contributions of $15bn (€12.2bn) over the next seven years to help cover elevated claims.

Last year, Gecas contributed $1.4bn (€1.1bn) in net income to GE, which is expected to generate $7.3bn in earnings for 2017.

Earlier this week at the Airline Economics conference in Dublin, Mr Burger said that GE considers Gecas (GE Capital Aviation Services) to be a "keeper", even as Mr Flannery continues to mull over options for the group.

"I can't make the speculation go away. Every time you open a newspaper, there's another story on this," Mr Burger told the Irish Independent.

He added that there's strong liquidity in the aircraft leasing sector at the moment, and that for a company such as Gecas, a "straight sale" would probably be better than an IPO, even if either moves were being considered.

Asked if he thought that vultures might circle Gecas given the consideration being given by GE to a break-up, Mr Burger said he had no such concerns.

"I don't really know what blood in the water really looks like, because we're never going to be a distressed seller of assets," he said.

"We still have capital to play both offence and defence, so I think people who are looking for blood are going to be sorely disappointed."

Mr Burger added: "You will always look at everything, but I would tell you from what I've seen in today's market, there's liquidity, and quite frankly enough strategic value, that from an execution standpoint, you'd probably do better with a straight sale (than an IPO)."

He agreed than a sale via an IPO of just a small part of a large business often achieves little.

"You get caught almost in a no-man's land."

Gecas has a fleet of about 2,000 aircraft, including almost 1,700 fixed-wing aircraft and more than 300 helicopters.

Mr Burger added that the leasing sector is also quite likely in the midst of a "golden era".

"We're leasing into a sector that is experiencing extraordinary growth," he said.

"I think when you look at the growth in China, India and other parts of Asia, it could almost be the golden era of aviation growth."

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