GUY NORRIS / LOS ANGELES
GE Aircraft Engines president and chief executive says the company's lifeline to safety will be its defence arm
"If I didn't have a military business that is growing at the moment, then everything would be different," says David Calhoun, a straight-talking accounting expert who took over the helm of GE Aircraft Engines (GEAE) in the happier days of late 2000. The military market is propping up a raft of research and development programmes that represent the most ambitious product and technology development strategy in the company's history.
"It is a kind of dicey proposition we play, but we are driving through all the development programmes as they existed pre-9/11. It is going to test us," says Calhoun, who adds that if it were not for the military hedge, "I'd have to contract or cut one or more of the civil engine R&D programmes".
The R&D budget, which climbed from around $800 million in 1999 to over $1.1 billion in 2002, includes the GE90-115B for the Boeing 777-200LR/300ER, growth versions of the CF34 for Brazilian, Canadian and Chinese regional jets, the GP7200 for the Airbus A380, and several upgrade packages. It also includes work on two military engines - the F110-132 for the Lockheed Martin F-16 and the F136 for the Lockheed Martin F-35 Joint Strike Fighter (JSF).
Although the investment strategy might appear to be as counter-intuitive as it is counter-cyclical, particularly given the grim times, Calhoun remains confident in the military forecast. "We're looking at very healthy double-digit rates (5-10% growth) and over the next five years we will stay on course," he says. In all, GE sees a military market worth an estimated $20 billion over the next 15 or so years - more than 75% could come from the JSF.
The F136 is therefore regarded as the "jewel in the crown" despite there being no firm order for the powerplant. Assuming procurement plans hold firm, GE sees a potential market for 5,000 engines. This excludes the first 140 aircraft, which will have Pratt & Whitney's F135 engine.
The other large chunk of GE's forecast, worth about $5 billion from 2003 to 2015 and beyond, is formed from a raft of re-engining, upgrades and emerging military market opportunities. These include several tanker programmes, such as the US Air Force's planned Boeing 767 fleet, worth $1.5 billion, and various unmanned combat air vehicles, particularly the F404-powered Boeing A-45, valued at about $1 billion.
Others include more than $1.6 billion from further Boeing F/A-18E/F acquisition, $650 million of which is forecast for the EA-18 variant. Turboshafts are also predicted to come in with big numbers, with Sikorsky UH-60 Black Hawk upgrades and the AH-64 commonality programme together accounting for about $1.37 billion.
The next few decades also hold potential for the upgrade of GE's massive military installed base of more than 21,000 engines. "There are lots of upgrades and sales opportunities, and that business gives us great hope," says Calhoun, who still expects the traditional "big fight" with P&W over major international contests to continue well into the future. This will include the JSF, despite the unprecedented co-operation between the two engine makers over design integration features for the F-35. "We've had to learn how to compete and yet be the best of friends," adds Calhoun.
But long before the first F136 upgrade is considered, GE expects to leverage potentially massive business in supporting and upgrading its large fleet of military engines. By far the biggest of these is the T700, of which more than 7,250 are in service, and which is not due for retirement until at least 2035. Other big fleets with major upgrade potential include the J85 (4,000), CFM56 (around 2,500 in military service), F110 (2,060), F404 (2,400), T58 (1,550), J79 (1,450), TF34 (1,000), T64 (970), TF39 (500) and F101 (440).
The relatively upbeat military market is in stark contrast to the gloomy commercial picture. "The commercial outlook is dimmer than it was in the summer months," says Calhoun, who adds that GE hoped it would bottom out last May or June. "If anything, it's got worse than that. It is impossible for the big guys to break even, so we're adjusting downwards in response. We really don't think the market is going to come back until 2005 at the earliest." Doing the numbers, GE expects 2002 deliveries to be about 20% down on 2001, while new engine orders are trailing by a similar amount despite the welcome business from Ryanair and EasyJet.
Indeed, GE is pinning its near- and mid-term hopes on the likes of these low-cost carriers. "There's no question, there is a glimmer of hope there and they [EasyJet, Ryanair and Southwest] are right in the GE model," says Calhoun. Based on the current prognosis, GE believes the delivery decline will slow to 15% below the 2001 level in 2003, before flattening out in 2004 and possibly rising in 2005. Commercial revenues as a whole are expected to be down to about $1.8 billion in 2003.
The only big bright spot on GE's otherwise dark civil horizon is the regional business and the ubiquitous CF34, which saw deliveries climb 20% in 2002. "In my opinion, it will be the franchise that defines GE's success in the next decade," says Calhoun. "Just like CFM did with the CFM56 in the 1990s, so the CF34 will do it for GE in the 2000s."
Source: Flight International
