GE jet engine installs drop 45% in sgn of aviation collapse

General Electric Co. reported deep strains in its aviation business as the coronavirus pandemic pummeled commercial air travel worldwide.

While the manufacturer had already laid out cost cuts to combat a slowdown, the magnitude of the first-quarter decline was eye-popping. Sales at GE Aviation, long the crown jewel of the manufacturing divisions, fell 13%, the company said Wednesday. It took well into February for the virus’s effects on global commerce to take hold.

The second quarter isn’t shaping up much better for GE. Installations have dropped 45% for new engines, and slid 60% for spares, GE said in presentation slides.

“This is going to be challenging for a good bit,” Chief Executive Officer Larry Culp said in an interview. It will be a “multiyear recovery, and that will impact our after-market business. That will impact our new-build business.”

The results underscore the severe impact of the pandemic on aviation and the broader economy. And for GE, the new stress on a key business threatens the turnaround effort Culp has pushed in his first 18 months on the job, as he tries to shore up the balance sheet and pull the company from one of the deepest slumps in its history.

For more on GE’s earnings, see our TOPLive blog

The shares were little changed at $6.82 at 9:39 a.m. in New York as the broader market rallied on hopes for coronavirus treatment. GE slumped 39% this year through Tuesday, while a Standard & Poor’s index of industrial companies fell 21%.

Cost Cuts

GE had already disclosed a number of pandemic-related actions in recent weeks, including executive pay cuts and workforce reductions in the aviation division. The Boston-based company withdrew its forecast earlier this month, saying it couldn’t reasonably predict how the rest of the year would play out.

The company is now targeting $2 billion in cost-saving measures and $3 billion in cash preservation. Culp said a significant portion will come from the aerospace business, representing a doubling of its earlier cost-cut plan.

“Those numbers suggest a fairly dramatic adjustment in aviation, given our view of that landscape over the next several years,” Culp said. There may be additional workforce reductions in the power and renewable-energy units, he said.

The comments came as GE reported adjusted profit of 5 cents a share, missing the 7-cent average of analyst estimates compiled by Bloomberg.

Free cash flow from GE’s industrial businesses—probably the single most important metric for investors these days—was minus $2.2 billion. That’s roughly in line with GE’s communication earlier this month, when the company said it would be near the previous guidance of minus $2 billion. GE said Wednesday that the Covid-19 outbreak reduced its cash flow by about $1 billion.