GE Capital recognised a second-quarter non-cash pre-tax impairment charge of $800 million related to its GECAS unit, but does not anticipate any further goodwill charges at the lessor.
The bulk of the impairment is related to Milestone Aviation, according to a 10-Q filing. “Of the $0.8 billion of GECAS goodwill, $0.7 billion arose from the acquisition of the helicopter business in 2015,” parent company General Electric stated.
“The pandemic has led to worldwide reduction of flight schedules and it is difficult to predict its longer-term impact. In the second quarter, the estimated fair value of the GECAS reporting unit declined below book value, reflecting downward revisions to internal forecasts and decreases in market multiples."
No more goodwill remains at GECAS or GE Capital, a GECAS spokesperson tells Airfinance Journal.
As of quarter-end, GECAS owned 965 fixed-wing aircraft, of which 17 with a book value of $400 million were available to lease to customers or were considered aircraft on the ground.
The lessor has accelerated its review of the business in the second quarter to focus on leases with “a higher risk of repossession” and any “unplaced leased assets” rolling off over the next 12 months. This represented approximately 20% of the fixed-wing aircraft operating lease portfolio and resulted in a pre-tax impairment of $300 million in the three months on its fixed-wing aircraft operating lease portfolio.
GECAS continues to see elevated deferral requests. As of 30 June, it had received deferral requests from approximately 80% of its airline customers, and had granted approximately 60% of such requests.
“We expect to continue to receive requests for rent deferrals and/or lease restructures from our global airline customers as a result of COVID-19 and related market impacts. An extended disruption of regional or international travel could result in an increase in these types of requests in future periods, which could result in an increase to the trade receivable balance.”
It added: “As GECAS evaluates future lease restructures, there is a risk of lease modifications that could have a material adverse effect on GECAS operations, financial position and cash flows.”
GE Aviation’s segment orders decreased 56% during the second quarter, while segment revenues were down 44% and segment profit fell 149% compared with the year-earlier period.
Parent company GE ended the second quarter with $41.4 billion of consolidated cash, cash equivalents and restricted cash, in addition to its available credit lines.
However, it warned that “while factors related directly and indirectly to the COVID-19 pandemic have been impacting operations and financial performance at varying levels across all businesses, the most significant impact to date has been at our aviation segment and our GE Capital Aviation Services (GECAS) aircraft leasing business within our Capital segment.
"The pandemic is having a material adverse effect on the global airline industry, resulting in reduced flight schedules worldwide, an increased number of idle aircraft, lower utilization, workforce reductions and declining financial performance within the airline industry, as well as requests for government financial assistance by various industry participants.”