GE Capital called tune on rescue

GE Capital very much called the tune when it stepped in to rescue GPA. It agreed to buy GPA's fleet of aircraft at a discounted price to their actual cost but also demanded it be given the option to buy the company at a future date for $65 million (£46 million). At the time, GPA's founder, Dr Tony Ryan, angrily described its demands as tantamount to a "rape" of the company he founded.

Five years on, GPA insists it initiated the divorce proceedings. And having hammered out a mutually acceptable financial settlement, it is actively courting new suitors.

Chief executive, Mr Patrick Blayney, says GE Capital was the "best of a series of bad options" open to GPA in 1993 and forecasts a more confident outlook for the company in the years ahead.

GPA currently has 92 aircraft, with a book value of $750 million. If the agreement with GE Capital is approved by its shareholders, this will fall to 55, with a book value to around $500 million. A further 50 or so aircraft are held by two subsidiary companies, bringing its total fleet after the agreement to around 100.

The company believes the deal will considerably improve its financial position, with cash raised to be directed towards further reducing its debts. If negotiations with new investors are successful it should also provide greater liquidity for shareholders, it claims.

Mr Blaney predicts the group, which will no longer be called GPA, will emerge as an independent aviation group within five years.

"We can create something quite valuable while learning the lessons of 1993. GPA wants to focus on being a niche market player, going out into the market essentially as a new company."

Dropping the GPA name is a "good thing and a bad thing", in Mr Blaney's view. For some creditors, he says, GPA will always set alarm bells ringing, while the company will now have to concentrate on building a new brand name in the market.

The company has reported a strong recovery in the aircraft leasing business since 1995, and has reduced it borrowings to $638 million at the end of September last, with annual profits of $24 million.

Mr Blaney stresses that while GE Capital bought GPA's aircraft and continued to manage its fleet, the company never went beyond the original terms of the agreement in providing support for a sustained recovery.

When presented with a deal, which allows it to realise a financial return for its shareholders, it decided to accept. Mr Blaney says GPA was always nothing more than a "pimple on a pimple on a pimple" in the scale of GE's operations.