GE's aviation business has weakening earnings that are 'masked by gains' undisclosed by the company, J.P. Morgan analyst Stephen Tusa said.
General Electric's prized aviation financing and leasing business is"already in liquidation mode" and has weakening earnings that are"masked by gains" undisclosed by the company, J.P. Morgan analyst Stephen Tusa said in a note to investors Tuesday.
div > div.group > p:first-child"> Tusa believes GE Capital Aviation Services is"selling higher return assets to pay for its lower return order book," he said, causing the unit's declining earnings to be"masked by gains not disclosed in earnings reports or filings." He said that GECAS is buoying earnings by choosing to allocate interest into"an overlooked 'other continuing operations' category" that Tusa contends is no longer relevant.
GE Capital Aviation Services has been called the crown jewel of the GE Capital portfolio and is valued as high as $40 billion. But Tusa, who has garnered a wide following for his work on GE, said in his note that GECAS is"not earning $1.2 billion" a year, as the company has said. "This portfolio is already being liquidated to support an order book GE cannot currently afford," Tusa said.Tusa contends that"most analysts" on GE accept the $1.2 billion a year figure"as sustainable fact," he said, and therefore"conclude that this is an highly valuable asset."
"We disagree, and see a franchise that is actually, on a run rate, barely breakeven on a pre-tax basis, heavily cash flow negative, supported only by fleet liquidation, which is perpetuating a declining revenue base," Tusa said.
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