General Electric is weighing options for its aircraft leasing operations, including the sale of all or part of the business, as Chief Executive John Flannery searches for new divestitures, according to people familiar with the matter.
GE's move on GE Capital Aviation Services (GECAS), the world's second-largest lessor, follows expressions of interest from some of its competitors, the sources said.
A spin-off of the business is also a possibility, the sources said, cautioning that GE may decide to keep the business.
The move comes at a time when a flood of Chinese funding is shaping the $260 billion-strong aircraft leasing industry as a significant new asset class.
GE declined to comment. The sources asked not to be identified because the deliberations are confidential.
GECAS has a fleet of roughly 1,300 planes worth an estimated $25 billion, ranking behind only U.S.-listed AerCap Holdings NV <AER.N>, which is estimated to have a $30 billion portfolio, according to data from industry consultancy Ascend Flightglobal. AerCap has a market value of $8.3 billion.
Some 40 percent of the airline industry's aircraft is leased to avoid the fixed costs of owning planes.
Both GECAS and AerCap trace their roots to the collapsed (Guinness Peat Aviation) (GPA) leasing empire of Irish leasing baron, Tony Ryan, over two decades ago.
GE Capital bought $1.3 billion of prime GPA assets and struck a deal to manage most of the rest to form GECAS – coupling GPA's hardware with GE's balance sheet. The remaining core of old GPA was later acquired by AerCap, which is now the main competitor to GECAS.
RISE OF ASIAN LESSORS
Consolidation in the leasing sector has intensified in the last few years, as Asian competitors chip away at the market shares of GECAS and AerCap. GECAS has also been trimming its fleet in the last few years.
"I believe that GECAS sees opportunity in the market to sell aircraft with leases attached to new emerging lessors which allows them to generate profit on these specific transactions whilst also managing their asset and customer concentration risk," said Rob Morris, global head of consultancy at Ascend Flightglobal.
Avolon Holdings, owned by China's shipping-and-airline giant HNA Group, has vaulted to become the world's third biggest lessor after acquiring U.S. rival CIT Group's plane leasing business this year.
Bank of China-owned Bank of China Aviation and subsidiaries of Industrial and Commercial Bank of China, China Development Bank and Bank of Communications have emerged among the list of top 15 lessors after placing multi-billion dollar orders for Airbus and Boeing aircraft.
In June, GECAS struck a partnership with Caisse de Depot et Placement du Quebec, Canada's second largest pension fund, to create a new company focused on leasing high-tech, fuel-efficient narrow-body aircraft.
Flannery has been looking for divestitures to meet his goal of identifying more than $20 billion worth of assets for GE. The company has also been exploring divesting its transportation and healthcare information technology businesses, sources said last month.
GE is looking to bounce back after what Flannery said last month were horrible results in the third quarter. He has argued that GE's strong businesses are being held back by others that "drain investment and management resources without the prospect for a substantial reward".
Flannery is due to update GE shareholders on the company's strategy at an event on Nov. 13.
(Reporting by Anshuman Daga in SINGAPORE and Greg Roumeliotis in NEW YORK; Additional reporting by Tim Hepher in PARIS and Alwyn Scott in NEW YORK; Editing by Steve Orlofsky, Tom Brown and Muralikumar Anantharaman)