AerCap to Acquire GE’s Aviation Leasing Business

By Stuart E. Leblang, Michael J. Kliegman,  and Amy S. Elliott

On March 10, Ireland-based aircraft leasing company AerCap Holdings N.V. (NYSE:  AER) (AerCap) announced that it had agreed to acquire all of the GE Capital Aviation Services (GECAS) business from General Electric (NYSE:GE) (GE). ¹ GECAS, an aviation financing and leasing company, is a subsidiary of GE’s financial services arm, GE Capital, and includes operations in Ireland. ² 

In exchange for the transfer of $34 billion of GECAS’ net assets, GE will receive 111.5 million newly issued AerCap shares plus $24 billion of cash and $1 billion of AerCap notes and/or cash. ³ With about $6.2 billion worth of stock being issued as consideration in the transaction, the ratio of cash to stock in the deal is about 80/20. ⁴ 

Upon closing of the transaction, which is targeted for some time during the fourth quarter of 2021 ⁵ (subject to AerCap shareholder approval and other conditions), GE will own approximately 46 percent of the combined company and will be able to nominate two directors to newly created seats ⁶  on AerCap’s board (taking it from nine seats to 11 seats ⁷ ).  While a lock- up agreement will be in place preventing GE from selling its AerCap stake right away, a portion of GE’s stake can be disposed of after nine months (with the lock-up expiring after 15 months). ⁸ 

The GECAS business is generally housed within U.S. and Irish companies.  Based on information contained in the merger agreement 9  and discussed on a March 10 investor call, ¹⁰  the transaction will involve the sale of U.S. and Irish companies, and the sale of the U.S. GECAS company will be treated as an asset sale for U.S. tax purposes pursuant to an election under Internal Revenue Code (IRC) section 338(h)(10).  GE will utilize a portion of GE Capital’s net operating losses (NOLs) to offset the deemed sale gain for the U.S. portion of the GECAS business.  Because there will be no basis step-up for Irish tax purposes, AerCap will have to absorb the deferred tax liability for the Irish portion of GECAS. ¹¹ 

It is noteworthy that GE will only own 46 percent of the combined company, which will mean it will avoid having to pay tax on any deemed global intangible low-taxed income (GILTI) ¹² of AerCap.  That is because GE’s AerCap ownership will fall below the 50-percent threshold that would have turned AerCap into a controlled foreign corporation (CFC) of GE (such that the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned (directly or indirectly) by U.S. shareholders on any day during the taxable year of the corporation).  As we expect the tax burdens imposed by the GILTI rules to increase under the Biden administration and Congressional changes, this should be all the more beneficial.

^{[1] Press Release, AerCap, AerCap to Acquire GE Capital Aviation Services (March 10, 2021) (https://www.prnewswire.com/news- releases/aercap-to-acquire-ge-capital-aviation-services-301244404.html).}

^{[2] GE, Annual Report (2020 Form 10-K), at 22 (Feb. 12, 2021) (https://www.sec.gov/ix?doc=/Archives/edgar/data/40545/000004054521000011/ge-20201231.htm).}

^{[3] Press Release, GE, GE Announces Combination of GECAS and AerCap (March 10, 2021) (https://www.businesswire.com/news/home/20210310005447/en/GE-Announces-Combination-of-GECAS-and-AerCap).}

^{[4] As of market close March 9, AerCap was trading at $56 per share.  111.5 million shares x $56 = $6,244 million; $6.244 billion + $25 billion = $31.244 billion; ($6.244 billion / $31.244 billion) x 100 = 19.98%}

^{[5] AerCap, Investor Presentation, March 10, 2021 (https://d1io3yog0oux5.cloudfront.net/_c6bbf8e374007c639b54a3eec7138b09/aercap/db/488/5480/file/Investor+Presentatio n+March+10%2C+2021.pdf).}

^{[6] Supra, note 3.}

^{[7] AerCap, Annual Report (Form 20-F), at 51 (March 2, 2021) (https://www.sec.gov/ix?doc=/Archives/edgar/data/1378789/000137878921000007/aer-20201231.htm) .}

^{[8] Supra, note 3.}

^{[9] Transaction Agreement by and among GE entities and AerCap entities, among others, dated as of March 9, 2021 (https://www.sec.gov/Archives/edgar/data/40545/000095014221000936/eh210136981_ex0201.htm).}

^{[10] Transcript of conference call, Acquisition of GE Capital Aviation Services by AerCap Holdings NV (https://www.sec.gov/Archives/edgar/data/1378789/000095015721000332/ex99-1.htm).}

^{[11] Transcript, AerCap Investor Presentation on Acquisition of GE Capital Aviation Services by AerCap Holdings NV, March 10, 2021 (https://d1io3yog0oux5.cloudfront.net/_466340a7bedb444f7a8eeb1a7d68d91f/aercap/db/488/5482/file/AerCap+GECAS+Tran saction_Bloomberg+Transcript.pdf).}

^{[12] IRC §951A.}