00:00Let's head down to the Farnborough Air Show, where Bloomberg's Guy Johnson is with the GE Aerospace Chairman and CEO
00:05Larry Kulp.
00:06Hi.
00:09I certainly am. Thank you very much indeed, Danny.
00:12Yes, welcome back to the Farnborough Air Show here in the UK.
00:16As you say, Larry Kulp is with me.
00:18Larry, great to see you.
00:20Thanks for spending some time with us.
00:21Look, the first thing I've got to ask you is why on earth are we sitting in front of a
00:24very big 747 with your name on it?
00:27Well, it's the GE Aerospace name. Guy, good to be with you.
00:31This is our flying test bed.
00:32As you say, this is a 747-400.
00:35This is basically our airborne laboratory upon which we test all of our engines.
00:43There's a lot of talk here at Farnborough, as there often is at the air shows, around the future of
00:47flight.
00:48We wanted to bring the flying test bed to Farnborough just to reinforce and help people understand everything that we
00:54do on board
00:55and inside the plane to make sure that we're bringing forward the best possible engines from a safety and reliability
01:01perspective.
01:02Are you going to test the next generation of engines for narrow bodies like the 737 or the A320s on
01:09this?
01:09Because there's a big debate here at Farnborough about whether it's open rotor or the traditional kind of ducted jet
01:16engine for that next generation.
01:18Is this the aircraft you'd use to test that?
01:20Very much so. So even though it's a wide-body engine, we can test virtually any engine that we might
01:25fly across our portfolio under development on the flying test bed.
01:29Cool. Let's talk a little bit about the show and what has happened here.
01:33I'm sure you've been absolutely snowed under meeting after meeting.
01:37What I've seen come out of the show is, again, huge numbers of orders for aircraft, which means huge numbers
01:43of orders for engines.
01:44You've just landed a huge deal in India as well. The backlog is getting bigger and bigger, Larry.
01:49It's a nice problem to have, but at some point, are you going to have to invest in additional manufacturing
01:53kit in order to fulfill some of these huge orders that you're taking?
01:57Well, guys, it's been very busy. We've been here since Saturday, and I don't think we've had a better air
02:03show.
02:03From an orders perspective, we've had a number of announcements.
02:07I think the one you're referring to is one we let out yesterday afternoon, over 1,000 engines with Indigo
02:15Airlines in India.
02:17Really excited about that multi-year commitment. There are others.
02:21I won't take our limited time here to go through the roster of them.
02:24There are many.
02:25There are many, narrow-body and wide-body.
02:28Guy, we've been investing in our manufacturing footprint in our supply chain for years.
02:33We know that a good air show is interesting, but we're on a multi-year ramp, both with our commercial
02:39customers and in defense.
02:42We're sold out into the early 2030s, so whether it be investments in fixed capital, just as importantly, investments in
02:49people and process,
02:51those are the things that enabled us, say, in the first half of this year to increase our engine deliveries
02:56by over 30% year over year.
02:59We're going to need to be driving that sort of improvement, that sort of growth, for years to come.
03:03Does that pace increase? Does the cadence of that start to increase?
03:08As you say, you're sold out for years and years to come.
03:11Well, I don't think we need to necessarily compound at 30%, but we're going to have to do more in
03:16the second half of this year than we did in the first half,
03:18and 27% is going to need to be bigger than 26%.
03:21So we know we're on a multi-year ramp, and what I'm so excited about, we said this last Thursday
03:27at our earnings call,
03:28we've got nine quarters in a row now where we've seen double-digit sequential increases from our suppliers that are
03:36probably prone to pace us the most,
03:37which tells me they're investing, we're collaborating to break bottlenecks where they exist,
03:44and we're able to get more from them.
03:46In turn, we're able to deliver more to our airframe and airline customers.
03:50Do you think you're going to have to invest more in that?
03:51You did highlight that.
03:52It was something that really stood out in terms of what you said on that earnings call.
03:55But is there something, do you think you're going to have to invest more in that supply chain?
04:00We've talked about kind of investing in your capital infrastructure.
04:03Do you think you're going to have to invest in theirs?
04:05Is there M&A stories that maybe you think about in order to just get that supply chain to where
04:09you want it to be?
04:10There's more to come, without doubt.
04:13Most of that will be organic, right, within our operations.
04:17Some of it will come by way of collaboration.
04:18I'm sure there will be inorganic investments as well.
04:21We've done a number of small acquisitions with suppliers that were better off, frankly, under our roof than at arm's
04:28length.
04:29But at the end of the day, it's not about ownership.
04:31It's about problem identification and breaking those constraints.
04:35Again, I think we've made a lot of progress the last few years in partnership with a number of our
04:40key suppliers, large and small, many of them here.
04:43More to come.
04:44OK.
04:46There's been so much news flow as we've been here at the show.
04:49One of them has been around what is happening with oil prices and the fact that we're seeing them heading
04:54back up again as a result of what's happening in the Gulf right now.
04:57If I talk to Kelly over at Boeing, if I talk to Guillaume at Airbus, they're like, this is in
05:01some ways good news for us.
05:03Because what it does is it encourages our customers, the airlines, to invest in the most up-to-date aircraft,
05:08the most fuel-efficient aircraft that they can get their hands on.
05:12For you, though, I just wonder whether it's a slightly different story.
05:14Because what we do see as well is that the airlines look at their older fleets and go, maybe we
05:20should retire some of those older aircraft.
05:22But the spare parts business is a big margin driver for you.
05:24How do you see the balance working there?
05:27Well, I would say what's good for Boeing or good for Airbus is good for General Electric.
05:31OK.
05:31There's no two ways about that.
05:33But the other piece of the equation right now, Guy, that you didn't touch on, frankly, is demand.
05:38Every airline CEO that has been at Farnborough, those that we talked to just a few weeks ago at IATA
05:46in Rio, all have remarked about how strong demand has been, even in the face of some of the oil
05:52price disruptions since the springtime.
05:55So we're looking at a situation where we have very strong aftermarket demand.
05:59We have very strong new make demand.
06:01And, again, we can never forget about defense.
06:05So we have our work cut out for us on a multi-year basis.
06:08We know we're going to have to ramp.
06:10We're going to make those investments, drive those process improvements.
06:13But that work is underway at GE Aerospace, and that work will continue.
06:16One of the big discussions here has been almost about the aircraft that's not here, and that's the next generation
06:21of narrowbody.
06:22We talked about it a little bit earlier on.
06:23You're going to test it on this 747, the engine for that.
06:26You're pushing quite hard for the open rotor technology.
06:28You think that's the future.
06:29You think it's going to be simpler, easier to maintain, have some fairly big cost efficiencies that come with it.
06:35The airframers aren't there yet.
06:37They don't appear ready, judging by the conversations that I've had, to be ready to make a decision on that.
06:42How late can they leave it?
06:43When do you think that decision is going to come?
06:45Well, we had an announcement just yesterday in concert with Airbus, with CFM International.
06:50We were talking about our new flying test bed equivalent for the open fan architecture.
06:56It's a technology development program.
06:58Guys, as you well know, this is a multi-year effort.
07:02We do think the open fan architecture provides both efficiency and maintenance or cost of ownership benefits.
07:08So we think we will ultimately be able to deliver to the airlines, the ultimate customer, an opportunity to do
07:15both.
07:15It's not yet a product, so there's work to do here.
07:19There's plenty of time for us all to work that out.
07:22But every next generation air body has always come forward with a step function improvement in performance.
07:29It's very hard to justify the investment to develop one, let alone buy one, without that.
07:33We're confident that the open fan architecture is going to be the enabler in that regard.
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