GE headed lower because key aviation business is worth less than believed, analyst says

KEY POINTS

• General Electric may still sell GE Capital Aviation Services, but the aviation leasing business may not be worth $40 billion, Gordon Haskett's John Inch says.
• He says he does "not believe that GECAS would fetch anywhere close to the book value of its assets in a potential sale."
• "Net proceeds from selling the aircraft leasing business (after paying off associated debt) of potentially zero," Inch says.

An employee helps install a traction motor onto the truck of a General Electric Evolution Series Tier 4 diesel locomotive at the GE Manufacturing Solutions facility in Fort Worth, Texas.

Luke Sharrett | Bloomberg | Getty Images

General Electric may yet sell its valuable aviation financing and leasing business, GE Capital Aviation Services, as the embattled conglomerate looks at ways to boost its fallen value.

But one Wall Street analyst says the profitable unit is worth much less than the $40 billion that Apollo Global Management may bid.

"While GECAS is widely considered to be the crown jewel of the GE Capital portfolio ... upon closer examination it appears that the GECAS assets could be overstated," Gordon Haskett's John Inch said in a note to investors Thursday.

"Moreover, we do not believe that GECAS would fetch anywhere close to the book value of its assets in a potential sale, while the proceeds to GE could end up a fraction of the sale price."

The business had a "book value" of $40.6 billion as of the third quarter of 2018. Inch said he believes it's "worth far less" than that. Instead, Inch said "third party assessment" shows the aircraft leasing portfolio is worth $25.8 billion, rather than $32.8 billion, and the helicopter leasing group is worth $2 billion rather than $4 billion.

According to Inch, the fleet is "less valuable on a per aircraft basis" than is being reported. That is "potentially due to an older fleet," he said. As a result, Inch said, any "associated future write-downs could wipe out much of GE Capital's remaining $11.7 [billion in] shareholders equity."

"This could suggest net proceeds from selling the aircraft leasing business (after paying off associated debt) of potentially zero," Inch said.

GE shares closed Thursday up 1.8 percent at $9.14 a share, after falling as much as 1.2 percent in earlier trading. Gordon Haskett has a $7 price target on GE.

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