Kevin O'Toole/LONDON
GENERAL ELECTRIC'S Aircraft Engines business pushed operating profits back above the $1 billion mark in 1995, confirming its place not only as the most profitable of the big three engine makers, but also as one of GE's star performers.
In an upbeat annual report, GE also makes clear that there are no plans to split up or sell off chunks of the massive conglomerate, apparently ending persistent speculation that all or part of the aircraft-engines business could be put on the disposal list.
GE chairman Jack Welch argues that the group now has the right mix of businesses and has no intention of indulging in a further round of divestments. "Breaking up is the right answer for some big companies. For us it is the wrong answer," he says.
With sales nudging above $6 billion and profits close to $1.2 billion, GE Aircraft Engines emerges with the corporation's second-highest profit margins, ahead even of GE's fast-growing finance arm.
The improvement results largely from a cost-cutting drive, which has seen the business shed close to one-third of its workforce over the past five years. Rolls-Royce and Pratt & Whitney have followed suit.
Although the acquisition of Allison, added nearly $600 million in sales and 4,300 employees to the R-R result in 1995, underlying employment at the UK company, has been slashed by 15,000 since 1991. P&W, has also cut staff, from more than 40,000 only a few years ago to 29,500 in 1995.
The comparisons are not exact, given the different mix of businesses included within the three companies, but, on a rough calculation of sales per employee, GE has a reasonable claim to be leading the industry on productivity,
GE's results also confirm some early signs of recovery in the civil-aircraft market, which helped sales to edge up across the engine industry for the first time since recession began to bite five years ago.
The airline upturn is not expected to gain pace until around 1998, says GE, adding that its military business has stabilised at annual sales of around $2.5 billion. GE's backlog also grew for the first time in years to stand at $7.7 billion by the end of 1995. GE says that new engine business worth $5.9 billion was signed up.
Much of the optimism now coming from GE stems less from renewed ordering, however, than from the prospect of a booming civil after-market over the next decade. The potential was underlined late in March with the announcement by British Airways of a ten-year engine-repair contract, worth £1.5 billion, ($2.3 billion) for its maintenance unit in South Wales.
GE Engine Services, which brings together spares and the growing overhaul and repairs operation, has sales of around $2 billion and the target is to grow the business at a rate of more than 10% a year through to the end of the century.
By then, GE points out, its base of in-service engines, including those of the CFM International joint venture, should become the world's largest, overtaking P&W.
The after-market has always been crucial to the major manufacturers, but its importance has been rising. With new-engine prices coming under intense pressure, all three of the big engine groups are looking to expand into potentially lucrative overhaul and repair markets to claw back profits.
P&W, which traditionally left repair and overhaul operations to airline customers, estimates that it handles work on only around 15% of its in-service engine base, compared with GE's 60%.
In terms of sales, P&W's repair business stands at a relatively modest $400 million, but the company would like to take that to around $1 billion over the next five years.
In the more immediate term, P&W is seeing a revival in its giant spares-business, which was badly hit during the recession. Spares sales had dipped to around $1.5 billion a year, down from a peak nearer to $2 billion, but P&W says that they are now climbing back.
Source: Flight International
