Remember the old Nike commercials with Bo Jackson? Bo knows football. Bo knows baseball. Bo knows cooking. Well, GE knows airplanes.
GE is a huge player in the aircraft loan and lease market. GE Commercial Aviation Services, or GECAS, already manages a fleet of more than 1,600 aircraft. Adding almost 25% more planes to the mix means more opportunity for growth.
According to an article, the growth is likely to come from cross-selling. GECAS works with GE Aircraft Engines to sell and service long-term maintenance agreements on the engines. GE can service not only its own engines, but also engines from competitors like Rolls-Royce and United Technologies'
Which makes the following comment by CIT management an interesting one:
"This is a thoughtful, strategic move for CIT. We will reinvest the capital from the sale of this portfolio into other commercial finance businesses which have stronger growth opportunities and better returns for our investors," said Rick Wolfert, vice chairman of commercial finance.
Clearly both sides think they are getting a good deal or the deal wouldn't have happened. And neither side would ever admit that it was on the wrong side of a deal. But I think the assets are more valuable under GE than CIT, given GE's broader capabilities for aircraft engines, which contain expensive parts with relatively short replacement lives. In business school, GE's ability to create value across its various subsidiaries is called a parenting advantage, which is something Fools should look for whenever they see deals like asset sales.
Considering the parenting advantage for the aircraft assets, CIT is most likely doing the right thing. Given its long history and broad capabilities in commercial finance, it knows where it wants to put the money.