One Sale Does Not a GE Turnaround Make

General Electric Co. investors may be getting ahead of themselves again. Shares of the company spiked this week following a Bloomberg News report that Apollo Global Management is meeting with lenders about a bid for all or part of its GECAS jet-leasing unit. On the one hand, a sale would be fresh evidence that CEO Larry Culp has taken the lessons of his predecessor John Flannery’s hesitation to heart and is willing to do what’s necessary to put GE on more stable footing. On the other, there are more questions than answers about a possible GECAS sale at this point, and it won’t solve everything.

GECAS has about $40 billion of assets, according to the company. But helicopter lessor Waypoint Leasing Holdings Ltd. filed for bankruptcy in November amid a drop in utilization, while rival aircraft lessors AerCap Holdings NV and Air Lease Corp. have declined 20 percent and 27 percent, respectively, from last year’s highs. That suggests a discount to asset value is warranted; JPMorgan Chase & Co.’s Steve Tusa estimates an enterprise value in the ballpark of $30 billion and Gordon Haskett’s John Inch has said $5 billion to $6 billion in after-tax proceeds are possible. GECAS’s underlying profitability absent tax benefits is a question mark, but it is actually earning money, unlike the rest of GE Capital. So while a deal would raise cash and help mitigate GE Capital’s debt load, a GECAS divestiture by itself won’t change the fact that what’s left behind is mostly a pile of undesirable assets and a potentially hefty additional liability tied to legacy long-term care insurance assets.