Kevin O'Toole/LONDON
General Electric has revealed the cost of abandoning its growth plans for the GE90 turbofan, writing off $275 million. The GE aircraft engine business, buoyed by its growing services arm, still managed to outperform its main rivals in profit margins.
GE revealed at the end of last year that it would take a major provision following its decision not to proceed with the higher-thrust GE90 to power the planned long-range version of the Boeing 777. GE says that the development cost could not be "justified" by the likely market size, citing Boeing's own decision to delay the new 777 programmes. The engine business also put aside another $67 million to cover some final restructuring.
The charges clipped the unit's operating profit back to the $1 billion mark, although GE says that, without the charge, it would have reached a record of $1.4 billion. Sales soared by nearly a quarter.
Alongside a boost from a booming civil engine market, the growth in GE's services business is starting to show through in earnest, including last year's massive acquisitions of Greenwich and UNC. With the new businesses fully on board, the GE Engine Services business is expected to pass the $4 billion mark this year.
GE's order backlog ended the year at a record $9.8 billion, of which over $6 billion is booked for delivery this year. Around two thirds of that is for new engines, but another $2-2.5 billion relates to 1998 "product services".
The airliner boom and the impact of long running cost cutting have already show through in year-end returns from Rolls-Royce and United Technologies subsidiary Pratt & Whitney.
R-R's engine business showed the most spectacular upturn. Analysis from Salomon Smith Barney points to the lack of growth in profit margins relative to sales, calculating that they actually fell if a declining research and development outlay is taken into account. It estimates that the gap roughly equates to a 30% discount on 1997 new civil engine sales, primarily the Trent.
R-R, however, saw a 15% rise in its lucrative spares business over the year.
Source: Flight International
