- 1 day ago
Category
🗞
NewsTranscript
00:00Right now we're going to head back to Brazil to hear from the CEO of GE Aerospace.
00:03GE, of course, a major conglomerate that has split up and gone into pieces here over the last few years.
00:07Larry Culp is the CEO of GE Aerospace.
00:10Guy Johnson, our colleague from London, is in Rio for that interview.
00:13He joins us now. Guy, over to you.
00:17Thank you very much indeed. Yeah, Larry is here.
00:19Nice to see you, Larry. Thank you very much indeed for spending some time with us this morning.
00:24Let's talk about the here and now to start the conversation off.
00:27And we're in a situation where we've got an award that's having an impact on aviation.
00:33It's having an impact on fuel prices.
00:35What impact are you seeing right now at GE's Aerospace as a result of what is going on?
00:41Well, Guy, first of all, thanks for the opportunity to visit with you this morning.
00:44And what we've seen really is nothing but a continuation of the strength that we saw through the first quarter
00:50of this year.
00:51Right.
00:51It's interesting because we thought we might see some change in airline behavior, but we really haven't.
00:57I look at spare parts orders on a regular basis.
01:00We were up 30 percent in the first quarter.
01:02We've actually seen those spare parts.
01:04Growth rates increased to 40 percent year over year.
01:08We've seen retirements tick down.
01:10We've seen engine removals, which are really a precursor to a shop visit, actually tick up at a rate faster
01:17than we can complete the shop visits currently.
01:20So I think we see our airlines very focused on making the most of the summer flying season, but also
01:26making preparations for the other side of the situation in the Gulf.
01:30Because the lesson I think we all took from the pandemic was things come back, they come back sooner, and
01:36they come back stronger than we would ever have anticipated.
01:38But you're surprised it's coming later.
01:41That, I guess, is the takeaway from this part of the conversation.
01:44You thought we may have seen it already.
01:45I would have thought we would have seen a little bit of change in airline behavior, but we haven't seen
01:50that yet.
01:50So, yes, surprised, pleasantly so.
01:54So, when it comes and you start to see some effects of this coming through, does it start in the
01:59Gulf?
02:00Is there any hint at this point that maybe some of the Gulf carriers start deferring, start changing behavior?
02:05Is that where it begins and it spreads out?
02:07Well, I think the airlines around the world are being impacted in different ways.
02:12So, depending on where you are geographically, the market segment you serve, you're seeing different impacts or looming impacts on
02:19your business.
02:20I mean, clearly we've seen a number of airlines that have adjusted their schedules over the next several months.
02:25So, that's happening.
02:26But in terms of the interface that we have, again, both with respect to keeping the planes they have today
02:32in the air during this prized summer flying season,
02:35but also making preparation for the other side of the conflict,
02:41the airlines really have not changed the way they are servicing today's fleets and preparing to expand and modernize.
02:47But where do you think it – what does it look like?
02:50When it shows up, what does it look like?
02:52When we get through the summer, we get into the fall, into the autumn,
02:57what are the early things that we kind of watching the aviation sector looking for clues that things are maybe
03:03starting to slow down or there's an effect?
03:05What do I look for in the industry?
03:07Well, what we're going to be looking for are those same indicators I mentioned earlier, right?
03:10Right.
03:10What's happening with spare parts orders, what's happening with retirements, what's happening with engine removals.
03:15Are airlines in a position where they can't or have decided not to prepare for the other side?
03:22We were out a week and a half ago at an investor conference in New York, Guy,
03:26and what we basically reiterated is that in 2026, given what we see,
03:30we feel very good about our services growth coming in at a mid-teens rate.
03:35And our medium-term outlook, which has our attack for 2027.
03:42So I don't want to in any way suggest that nothing might happen.
03:46But from what we see right now, a hyper-focus on the near term and preparations for the other side.
03:52How do you get GE ready for that?
03:54What do you do?
03:55Are you getting it ready?
03:56Are you preparing for a storm?
03:57Is it kind of – what are you thinking about in terms of the way you run the business to
04:01get ready for that?
04:01Because that's the lesson of the past, the recent past, is get ready, use this time wisely to prepare for
04:07that kind of a story.
04:08Well, I couldn't be more proud of the way the GE Aerospace team is dealing with both the short-term
04:13and getting ready for possibilities.
04:16But again, when you look at our business, given the strength of the backlogs that we have,
04:20both in narrowbodies and widebodies, well into the 2030s,
04:23the significant demand that we have supporting a million passengers in the air at any one point in time
04:29with our engines underweighing, a lot of what we're doing not only in our own operations,
04:34in our manufacturing, in our service footprints, but also in partnership with our supplier partners
04:40has given us the opportunity to put up the numbers that we did in the first quarter
04:44to see lead engine deliveries up over 60%, for example.
04:48So a lot of good growth, we want to make sure that we're in a position to continue to support
04:54the airlines
04:54in whatever way we do well into the next several years.
04:58You bring up the supply chains. Let's talk about that for a moment.
05:00Post-pandemic, the supply chain has been the issue.
05:03Trying to get the supply chain to work, to deliver, has been the challenge.
05:08Are you beginning to win that war now? Is that battle turning in your favor?
05:12Do you think you've got this situation under control in a way that you haven't for maybe the last few
05:16years?
05:17We have eight quarters now sequentially where we have seen significant increases in inputs
05:23from our critical supplier partners.
05:26I think what we've actually done is thrown the winning the war framework out the window
05:31and gotten into deep, technical, collaborative problem solving,
05:35making sure we're making the most of existing resources with our supplier partners
05:40while we're investing medium to long term in additional capacity.
05:44But there's no way that we take our LEAP deliveries up over 60% in the first quarter.
05:49No way we have our services revenues up over 30% if we weren't improving the supply chain.
05:55The challenge, Guy, that I think a lot of people don't appreciate is this is a wonderful opportunity
06:00that we'll be wrestling with for the rest of this decade.
06:02There'll never be a moment where we're finished because we have to do more in the back half of this
06:06year
06:06than we did in the first half of this year.
06:08The same will be true in 27 and 28.
06:10That's the beauty of having $170 billion worth of backlog.
06:14We know for the rest of this decade we're going to need to get better in our own operations
06:19and in partnership with our suppliers.
06:21But if we're together, nobody wins.
06:23But if we're collaborating, everybody does.
06:25That sounds like you're winning.
06:26That sounds like you're in a much better place right now.
06:30In terms of competition, let's just talk about competition for a moment.
06:34You are in a good place right now.
06:36Scott Kirby at United has been singing your praises this morning,
06:39talking about you guys and the job that you're doing.
06:42He's talked less favorably about the competition, Rolls-Royce.
06:46Rolls-Royce is going through a transformation right now.
06:50It will emerge from that at some point.
06:52Does competition get tougher further down the road when Tufan is in a different position,
06:59when he's got a handle on that business and a handle on his engines?
07:01Does competition get tougher?
07:03Well, first off, I'm delighted to hear Scott's comments.
07:06We're celebrating with United 100 years of their operations and our partnership with them.
07:11Scott's a friend.
07:13We're focused on the airlines, right?
07:15If we focus on the airlines and what they need, and that's the beauty of our business,
07:19we don't have a one-and-done transaction.
07:21We live with these engines from delivery for 20 or 30 years.
07:26And that is what I think enables us to make sure that whether it's a shop visit they need completed
07:32in the next 90 days
07:33or working with them with respect to delivering on their skylines,
07:37we're in a position to make sure we understand their needs and then turn around and do everything we can.
07:42And 2026, the year of what we call being more customer-driven, competition will do what competition does,
07:48but we're far more focused on our customers today.
07:50Okay.
07:51Competition may get tougher.
07:53I'm taking away from that, but you think you've got a handle on it.
07:56Is that the right interpretation?
07:59I'll let you and others talk about where our competitors are.
08:02Okay.
08:02I think in terms of the way our senior team and our board are oriented, let's be focused on the
08:08customer.
08:09Okay.
08:09Customer will lead the way.
08:11President Xi is coming in September to the United States.
08:14Should I expect big GE orders?
08:16Well, we were very pleased with the news we had in Beijing when both Kelly Ortberg from Boeing and I
08:21were there, honored to be there with the president.
08:25I think the foundation was laid, the door is open, and there will be a good bit of work up
08:30the course of the summer.
08:30Is there an expectation that maybe that trip would have delivered more?
08:33Is it a kind of, is it a two-part story?
08:37Part one we've seen, part two comes in September.
08:40I think it's a journey, and there was an important step taken in Beijing, no doubt, in my mind.
08:44Okay.
08:45Final quick question.
08:46We're almost done with the current generation of engines.
08:49We are going to be moving on to the next generation of engines, which you see as being an open
08:53rotor kind of configuration.
08:56Yes.
08:56Huge blades at the front of the engine.
08:59Many of the airline CEOs that I talk to at the moment say, let's just fix what we've got right
09:04now and make sure it works properly.
09:05What we want is reliability.
09:07What do you say to that in terms of what this next generation of aircraft engines will actually do?
09:13We couldn't agree more.
09:14Right here we are in 2026.
09:16Our LEAF engine is still a relatively new engine.
09:19Our GE NX, our leading widebody engine, still relatively new.
09:23Our GE 90, really the workhorse in the widebody space, probably a teenager, not a mature adult.
09:30So these are engines that are going to fly for decades, and we are working to improve the durability and
09:35reliability of those engines.
09:36That said, we need to be investing in 2026 to be ready for that next generation narrowbody that may be
09:4310 or 15 years out,
09:44from where we are today.
09:45If we're not investing today, we're not ready then.
09:48We do think that the open fan architecture will allow us to address those reliability and durability concerns, as well
09:57as deliver the next breakthrough in efficiency and sustainability.
10:00So it becomes simpler, not more complicated.
10:02Exactly.
10:03And that's the technology breakthrough that allows us to do both, as my friend Jim Collins would say, to employ
10:09the genius of the end.
10:11Durability and efficiency.
10:13Larry, it's great to see you.
10:14Thank you very much indeed for spending some time with us this morning.
10:16Guys, back to you in the studio.
10:17Larry Cole, the CEO of GE Aerospace.
Comments