GE is spinning off its Aviation entity
The future of Powerplants (or whatever) will require major investment in research
Learn from the Boeing Max 8 and include competencies relevant to the Highest Safety levels required for aviation power
The below Barron’s article closely scrutinizes the division of GE into three parts purely from a Stock Market/Financial perspective. GE Chairman and CEO Culp and those involved into the Transition of GE Aviation to a separate entity would be well advised to review the history of Boeing’s Max 8 Debacle and the consequences of the Chicago company’s Board’s lack of technical direction or at least oversight of the development, design, manufacturing, quality control and regulatory relations.
Boeing Board Says SAFETY; Will It Do SMS? 12/01/2020
Boeing Adds Some Safety Talent. 01/18/2021
[sadly, Boeing’s Board and senior management have not fully “rogered” the FAA’s and Congress’ admonitions.
The spun off GE Aviation organization faces the same technology challenges as Boeing-perhaps even greater research requirements in that the aviation industry MUST reduce its carbon emissions in the near future. The designs of greener powerplants and the introduction of SAFT will be high on the future GE’s investments list.
The transition team must search for high level talents in aeronautical research, high technology manufacturing, someone with real practical 6σ and/or aviation SMS experience and a capability/willingness to ask difficult questions. The field of aircraft turbine/scram/hydrogen/lithium power systems is burgeoning and the existing companies competing are large, global and frequently supported by their governments. Another threat comes from nations which heretofore have not occupied this manufacturing sector; their funding reflects the national goals to expand their economies—whatever the cost.
By Al Root
Reviving GE (ticker: GE) hasn’t been easy. Culp has sold lots of assets, including the biopharma business and aircraft lessor Gecas. Now, GE’s epic turnaround has entered a new phase after announcing that it would break up into three companies: one dedicated to healthcare, another to power and energy, and a third to aviation. The healthcare spinoff is slated for early 2023, while power and energy will follow about a year later.
GE’s stock popped more than 7% after the announcement, but almost immediately gave back the gains, finishing the week near where it started, a sign that investors are concerned the shares might be dead money until the spins are completed. They shouldn’t worry. While no one likes to wait, good things can happen between now and 2024, and history suggests that a stock can keep rising even as a company prepares to shrink.
The best reason to bet on GE going forward is this: Culp has a vision.
That begins with the idea that GE is worth more as the sum of its parts rather than as a stand-alone enterprise—and Wall Street agrees. GE Aviation can be compared with Safran (SAF.France) and Raytheon Technologies (RTX), which trade for roughly three times sales, even though it has better profit margins than the pair. The comparison values GE Aviation, which has sales of about $21 billion, at $63 billion.
History suggests that the dead-money problem might be overstated, too. United Technologies investors did just fine while that business was splitting three ways and merging with Raytheon. From the time the spinoffs were announced in 2019 until today, the stock of Raytheon, the surviving company, has climbed 43% a year on average, helped by stakes that Raytheon received in Carrier Global (CARR) and Otis Worldwide (OTIS). The S&P 500 index has averaged gains of 21% a year over the same span. And that outperformance took place even though Covid-19 hurt Raytheon’s commercial aerospace business.
One caveat: United Technologies was playing offense. GE, under Culp, started from a much weaker position.
But Culp was the first CEO to look at GE as it is, not as it once was. He ruthlessly simplified the company, including restructuring and paying down about $75 billion in debt. Since the turnaround began in early 2019, GE stock has returned 24% a year, nearly in line with the S&P 500 over that same span.
If investors are comfortable with Culp, they should rest easy holding GE stock until the spins unfold. The $130 sum of the parts is only a starting point. Don’t be surprised if Culp has more tricks up his sleeve.
 Redacted to focus on aviation.
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