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ERROR: type should be string, got "https://www.barrons.com/articles/general-electrics-airline-leasing-unit-might-not-be-sold-51548075600\nGeneral Electric’s Airline-Leasing Unit May Not Be on the Chopping Block\nAl Root\nPhotograph by Sebastien Bozon/AFP/Getty Images\nWe know that General Electric (ticker: GE) is a controversial stock. We know that new CEO Larry Culp is focused on fixing GE Capital.\nWhat we don’t know is what GE Capital Aviation Services, or Gecas, GE Capital’s largest division, could fetch in a sale. Or if that sale would fix what is ailing GE’s lending division.\nWe’ll try to answer what Gecas is worth here.\nGecas leases planes to airlines around the world. It also lends money to customers, finances helicopters, engines and aircraft parts. It competes with other aircraft lessors like AerCap Holdigs (AER), Aircastle (AYR) and Air Lease (AL).\nBut before valuation, its necessary to understand the level of controversy swirling about this asset and the parent, GE.\nGordon Haskett analyst John Inch believes that, in his worst case, GE stock could hit $5 per share. On the flip side, William Blair analyst Nicholas Heymann went through scenarios with Barron’s that could have GE stock trading at $15.\nThe divergence of opinion is evident in earnings estimates, too. Inch sees GE earning 36 cents per share in 2020, after Culp’s planned turnaround is complete. Melius Research analyst Scott Davis expects GE’s EPS that year to be $1.30–more than four times Inch’s estimate.\nIn comparison, 3M’s (MMM) 2020 EPS estimates range only from $11 to $12, according to Bloomberg.\nA big part of the reason for the wide range of opinions is that no one agrees on what GE’s assets, such as Gecas, are worth. Inch fears Gecas could be sold below book value, blowing another hole in GE Capital’s balance sheet. Heymann thinks Gecas could fetch more than book value.\nSo who’s right?\nBarron’s spoke with Cowen airline and air leasing analyst Helane Becker who explained some of the fundamental of the leasing business. “You want to lease new planes to the strongest airlines and make sure you have collateral,” Becker says.\nThat sounds simple, but on the question of value Becker adds, “There is no way to know the book value of any lessor, that’s why most sell at a discount to book value. You lease a 737-800 for 12 years and you get, maybe $275,000 a month. No one knows the rents and the risks until you get inside the business.”\nDoes that mean a Gecas deal is hamstrung because it would be sold for a low multiple?\nNot necessarily, we do know, based on available Gecas numbers, the GE leasing business generates asset returns that are a little better than other publicly traded lessors.\nHigher profitability supports higher multiples of book value, so it’s credible that the Gecas business could sell at book value.\nNow consider that the aircraft-leasing business is growing. Growth is another factor that impacts valuation multiples. Today, leasing is taking market share from other modalities of aircraft finance. About 41% of the global aircraft fleet is currently leased, and Becker notes that about half of planes being delivered today are sold to aircraft lessors who then place aircraft with airlines.\nWhile the valuation details are good to know, the question regarding the sale of Gecas is probably moot: Barron’s doesn’t expect GE to part with is aircraft-finance unit.\nIndustry consultant Richard Aboulafia told Barron’s that the finance unit is too important to the success of GE Aviation. He explains, “When [ Boeing or Airbus] design a plane, Gecas basically guarantees that the new planes with GE engines will get a large lease-company order.”\nAnd though Heymann sees higher value for Gecas than others, he agrees with that assessment. “Up till now the business was never for sale,” he says. “It was too strategically important for GE.”\nEven GE management agrees. David Joyce, CEO of GE Aviation, told a group of investors last year that, “Gecas, I think, is a fundamental advantage for us. We have very good information about where we think the world of commercial aviation is going, thanks to the triangulation of us and Gecas.” He went on to add that the strength of GE’s engine business isn’t solely dependent on Gecas, but he gave the impression that it helps.\nSince Aviation is GE’s most profitable division. It unlikely that Culp would risk upsetting the apple cart by removing Gecas from the mix. What about a partial sale to raise cash? Aboulafia says, “I can’t imagine many eager partial buyers, but can’t rule out.”\nThis is a lot to think about for something that isn’t likely to happen. Still, the key takeaway might be that leasing is a pretty good business. Gecas actually earned a total of about $2.2 billion in 2008 and 2009 during the depths of the financial crisis.\nAnd if anyone else needs convincing that aircraft leasing is a decent business don’t forget that International Lease Finance Corporation founder Steven Udvar-Házy had the National Air and Space Museum in Northern Virginia build an annex named after him. Mr. Udvar-Házy’s donation was more than $60 million.\nThat’s tangentially relevant because his ILFC was sold to AerCap in 2014 for $5 billion. Even that data point isn’t a great touchstone for Gecas value. Cowen’s Becker says, “When ILFC was sold, they hadn’t done a lot of purchasing because [AIG] was bailed out by the government, their fleet age had gotten old.” Barron’s calculates the ILFC portfolio was closer to 9 years old on average. Gecas’ portfolio was 8 years old on average as of 2017.\nGecas may be complicated to wrap one’s mind around, especially for industrial investors not too familiar with bank-like balance sheets. But Barron’s is confident that Gecas won’t become a new problem for GE–even if it isn’t sold.\nThat’s some welcome news for weary GE investors.\nWrite to Al Root at allen.root@dowjones.com\nWe know that General Electric (ticker: GE) is a controversial stock."