- General Electric seems to be completing a deal to sell off its aircraft leasing business to AerCap, for more than $30 billion.
- Apparently, getting rid of Gecas, as it called, was not originally planned by CEO Larry Culp when he took over, but subsequent events have contributed to a willing sell.
- More and more, it is apparent that Mr. Culp did not really have a vision for the future GE when he took over and has moved as opportunity has allowed.
- This lack of vision apparently impacted shareholder interest in the company, causing GE's stock to meander lower as his tenure progressed, only reversing this trend recently.
Many of us have been waiting for GE CEO Larry Culp to “pull the string” on some new deals so that we can get a clearer picture of what he has in store for General Electric Co. (NYSE:GE) and some greater idea of his vision for the future of the company.
Well, GE is making a deal that is adding one further piece aimed at solving the problem about what General Electric is going to look like in the future.
The word is out that General Electric is nearing a deal to sell its aircraft leasing business to the Irish Group AerCap for more than $30 billion.
Larry Culp took over the top position at GE in October 2018. I applauded the move on the part of General Electric, but I was not much taken by the early performance of Mr. Culp.
Apparently, investors were not that impressed with his approach to the turnaround and restructuring of the company for much of his tenure.
In the middle of October 2018, the month Mr. Culp took over the leadership of the company, General Electric’s stock traded around $11.85. The stock price reached a recent low in September 2020 as the stock closed at $6.20 on Sept. 24.
The stock price really didn’t begin to rise until the end of October. The rise flattened out in mid-December, but began to improve again in the middle of February, rising to its current level of just over $14.00 per share, currently on the basis of improving profits.
Looks like investors are seeing something that they finally like coming out of the company.
The General Electric Legacy
Mr. Culp inherited a mishmash of a company that was the extreme picture of what conglomerate American companies looked like. I won’t say any more on this now, but a conglomerate like General Electric, when Mr. Culp took over, was a meaningless legacy of a time when corporate leaders were buying companies in portfolio fashion with little to no rationale for the companies to be combined under one umbrella.
Mr. Culp’s job has been to turn General Electric into an organization that makes sense and that can perform at the highest levels.
This has been one of Mr. Culp’s problems up until this point, as he has not been able to effectively present a picture to the world of his vision of what General Electric could become. Consequently, he has been unable to articulate GE’s future and shareholders do not like that kind of situation.
As a result, GE stock fell during Mr. Culp’s first two years on the job. His rating: maybe a D-.
And, this was in spite of the stock market hitting all sorts of new historic highs.
At the end of January 2021, I was not impressed at all about GE's 2020 earnings report.
The reported earnings for the fourth quarter are given as the major reason for the recent rise in the price of the stock.
However, for me, there did not seem to be anything that that indicated that Mr. Culp was getting ahold of things. It was, as far as I was concerned, “same ‘ole, same ‘ole.” Things had not really changed much by that time.
Well, investors seem to think that maybe a page has been turned. The GE stock price is doing quite well, although, with Mr. Culp’s lack of transparency, I am still not a fan of his… nor of GE stock.
The New Deal
GE Capital Aviation Services, or Gecas, is the biggest remaining piece of GE Capital. And, with more than 1,600 aircraft owned or on order, Gecas is one of the world’s biggest jet-leasing companies, alongside AerCap (AER).
Mr. Culp originally did not seem to want to sell Gecas. However, with the onset of the COVID-19 pandemic and the collapse of the airline business, he seemingly has changed his mind and moved ahead to get further away from the airlines.
Overall, Mr. Culp has sought “to even out cash flows and refocus on core areas.” Operations he has parted with include the company’s biotech business, which was purchased by Danaher in a $21 billion deal that closed last year. GE also sold its iconic lightbulb business in a much smaller deal last year, and previously said it was unloading its majority stake in oil-field-services firm Baker Hughes Co. (BKR).
In addition, GE has cut overhead costs and jobs in its jet-engine unit while streamlining its power business. “The pandemic continues to pressure the jet-engine business, GE’s largest division, however,” per The Wall Street Journal.
Still, the company makes healthcare machines and power-generating equipment, and the rest of GE Capital extends loans to help customers purchase its machines and contains legacy insurance assets too.
So, there is not really much can say about the new deal, except it continues to show that Mr. Culp and General Electric are serious about downsizing the firm and creating a remaining entity that is somewhat manageable.
This latest move, however, seems to confirm the basic idea that Mr. Culp really had no explicit plan about what General Electric was going to look like in the future. Mr. Culp took over a menagerie of companies with one goal in mind: reduce the size and complexity of the overall conglomerate.
Mr. Culp, apparently did not feel that he could not present a vision of the future because he really didn’t know what was going to be left at the end of his shrinking of the company. Not a way to build up the confidence of investors.
One wonders, yet, whether or not he has any vision of what is going to be left of General Electric and what its future business model will be. Hopefully, he now has focused in on this.
In terms of investing in General Electric, I do not see a vision yet for the future, and I am not sure that Mr. Culp is yet able to prepare that vision. I am not willing to invest into such a situation, and, until such a vision and business model is presented, I cannot suggest that anyone else invest in such a situation. The future of General Electric is clouded in radical uncertainty and Mr. Culp has not made it any better.
This article was written by
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