GE headed lower because GECAS worth less than $40 billion

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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.

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 wrote 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,” Inch added.

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

Additionally, Inch’s analysis shows the GECAS 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 that 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 fell 0.9 percent in premarket trading from Wednesday’s close of $8.98 a share. Gordon Haskett has a $7 price target on GE.