Aviation Finance Of GEIs In Trouble, Weakening Earnings

Stephen Tusa (JP Morgan analyst) said through an investor note on Tuesday that the esteemed aviation leasing and financing business of General Electric is not earning sound and is at the verge of liquidation mode. GE’s Capital Aviation Services was titled as the prime and most esteemed part of GE Capital’s portfolio, which had a value of $40 billion (by Reuters).

However, Tusa revealed that GECAS is not even earning $ 1.2 billion a year as per the company itself. Tusa has gathered high following after his GE work. He also said that GECAS is selling its return assets on higher prices to ensure paying for its low return order. That is how the company is hiding their unit’s decreasing earnings, by putting a mask of gain on it. GE Capital is maintaining its earnings by allocating their interest into ‘Other Continuing Operations’ category whose relevancy is not available, added Tusa.

The highly esteemed GECAS is already liquidated to one order book which the company cannot afford as of now, said Tusa. GE’s CEO, Larry Culp, however, defended the aviation financing against Tusa’s note, in an interview at JP Morgan’s transportation, industrial and aviation conference. Culp said that GECAS is earning sound and making good money, GECAS is a strong business with good profits. Adding to his note, Tusa said that majority of analyst believes in the figure of $1.2 billion per year and are sure that it as a considerable figure. Majority of analysts have also considered it as an asset with high value.

In the end, Tusa said that they cannot agree on the stated fact, as the GE franchise is on its run rate, hardly breaking on pre-text base. It has a heavy frequency of negative cash flow and is only surviving on its fleet liquidation, all of them when combined together signs towards its decreasing revenue base. JP Morgan has neutralized rating, with a $6 target price on General Electric shares.

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