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April 20, 2024
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Splitting up General Electric from four business units into three individual public companies will allow each of them to focus on their own, while aviation becomes the core business of the new GE. GE Aviation already was the biggest cash generator within the company, but it should strengthen its position even more in the new corporate structure that was announced on November 9. GE Aviation better of as stand-alone business.

With Aviation, Healthcare, Power and Renewable Energy, and Digital, the ‘old’ General Electric had a complex structure. It also took on way too much debt, which stood at $140 billion in 2018. Thanks to divestments like the recently completed sale of lessor GECAS to AerCap for $34 billion, net debt will go down to $65 billion by the end of the year. GE targets another five to ten billion in debt reduction.

The new GE under Chairman and CEO Larry Culp will see Aviation as its core business. GE will retain 19.9 percent in Healthcare, but this will be spun off in early 2023. A year later, the combined Renewable Energy, Power, and Digital will also continue as a stand-alone business.

Culp explained he sees strong potential for all three businesses, but Aviation has huge potential to become stronger as it sets itself free of other units. GE Aviation has a strong product line in both civil and military engines. The civil product line includes the small CT7 and GE34 engines, the trusted CF6, GP7200, and GE90, and the newer generation GENx and GE9X turbofans. And thanks to its combined share with Safran in CFM International, it has a very strong position on the narrow-body market with the CFM56 and the new LEAP.

“In commercial engines, we operate over 37.000 engines. Over sixty percent hasn’t seen their second shop visit, which offers a tremendous opportunity as the market recovers”, said Culp. “With the industry’s largest and youngest fleet, I am confident our platform will generate value for decades to come.” GE’s military engines portfolio consists of six dedicated types and covers over 26.000 engines. Also part of GE Aviation is civil and military marine gas turbines, systems, and avionics.

GE Aviation, which continues to be led by John Slattery as its CEO, has become the biggest cash generator. Culp wants EBITDA to grow to some $6.0 billion, with free cash flow up from $5.0 billion this year to $7.0 billion in 2023. At the same time, the engine business is up for huge investments in new-generation, lower-carbon technologies. The Catalyst, its new business jet engine family, made its first flight recently.

Digital animation of the RISE engine concept. GE will invest huge sums of money and time into this program. (CFM)

It will take billions of dollars and a few more years before we will see the first results of the RISE technology program, short for Revolutionary Innovation for Sustainable Engines. It includes some 300 sub-projects that should eventually lead to a new family of aero engines, potentially with an electric and/or hydrogen open rotor concept. That’s where the new GE will be laser-focused on.

“In the near term, we are focused on delivering top-line growth, profitability, and cash generation in line with 2019 levels. Long-term through the cycle, we expect market growth of mid-single digits, with an operating margin in the high-teens to twenty percent range while converting more than ninety percent of our free cash flow”, Larry Culp explained.

If the need arises, GE sees options to further bolster its financial position. “We will be able to monetize our stakes in AerCap ($7 billion) and oil services company Baker Hughes ($4 billion). These stakes provide us with substantial financial flexibility going forward”, said CFO Carolina Dybeck Happe.

While under Culp, GE brakes with the decades-long tradition of expansion and acquisitions, he sees this as the best solution. “We have made a lot of progress over the last several years with our core operations as well as with our balance sheet. As we have seen in many instances also outside GE in the last decade, spinning good businesses heightens focus on accountability. There is no question about that. It just helps make everybody better. The capital allocation and strategic flexibility improvements that we are after will get with everybody. We feel strongly this is the right decision, this is the right time in what customers need from us. We can’t afford to waste a day.”

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Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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