By Bryan Corliss
April 25, 2023, © Leeham News – GE reported generating its first free cash flow in a decade, along with double-digit growth in orders, revenue, and operating profit, amid what it called a “robust” market for commercial aircraft engines and services.
The highlight of the quarter was the sale of some 800 LEAP engines to Air India, which will power the airline’s new Airbus and Boeing jets. The engines will be built by CFM, the joint venture between GE and Safran.
In addition, GE won the orders for the engines powering the 30 Boeing 777X and 787 jets Air India ordered, making it arguably the biggest winner in the year’s biggest aircraft deal.
CEO Larry Culp said he sees signs that the aerospace industry supply chain is stabilizing after protracted turmoil in the wake of the Covid-19 pandemic.
“We are making progress,” he said. “If you look at supplier on-time delivery as one example, if you look at material inputs being another, just our ability to hit our targets on a weekly basis internally, I see signs of progress.”
Culp added that “it’s still challenging – I don’t want to, in any way, suggest otherwise. But I’m encouraged by what we’re doing.”
GE’s Defense business, however, was affected by continuing shortages of materials and “supplier challenges,” Culp said. That led to a 2% decline in the unit’s revenues.
“We’re working as hard as we can within our own facilities and with our suppliers to deliver as much as we possibly can,” he said.
Services revenue grew by more than 30%, Culp said. Shop visits also were up 30% and external spare parts sales were up more than 20%.
GE is relying more on its MRO partners to do services work, he said. GE has added two more companies to its LEAP MRO network (for a total of five globally).
Third-party MRO shops working under license from CFM handle almost 70% of the CFM56 shop visits, Culp said. Adding the two new MRO providers for LEAP engines is “another step in the right direction to set this business up to have a similar profile over time.”
Culp said the robust demand, particularly for services, should continue throughout 2023.
“Services for a full year, we think will be up in the high teens to 20%,” he said. “It couldn’t be more robust, and that’s pretty well-balanced, both in terms of shop visits, spares and the like.”
However, given the current global economic uncertainty, “we’re not unmindful that there is some discussion around how long the flying public will indeed fly at this pace,” Culp said.
“We’ll see how that plays out,” he continued. “But you’ve heard from a number of the airlines already this earnings cycle where the CEOs, I think are uniformly bullish. Not only here, but in Europe.”
“In terms of when demand normalizes, that’s probably a question for another day,” Culp said. “Given the (Airbus and Boeing production) ramp, given the services ramp back – on the back of what we’re seeing broadly with departures – we’re optimistic about not only this year, but the near term.”