General Electric Co. (GE)’s aviation unit expects record jet-engine production in the next 18 months as demand rises for more fuel-efficient aircraft.
Crude oil hovering around $100 a barrel is spurring purchases of the newest, most economical engines even as it crimps airlines’ finances, GE Aviation Chief Executive Officer David Joyce said in a telephone interview ahead of the aerospace’s biggest trade show next week in Paris.
“In this kind of environment it’s almost Darwinian --the best equipment will survive,” said Joyce, whose Evendale, Ohio- based division is the world’s biggest jet-engine maker.
GE engine production for commercial planes will rise about 13 percent to 2,480 in 2012, according to the company, and output including military models will climb 5 percent to a record 3,370. GE Aviation’s order book is “very strong” across all regions, Joyce said.
The aviation unit’s earnings and sales should climb in 2012 as customers increase spending on more-profitable service contracts, Joyce said. GE Aviation had $17.6 billion in sales and $3.3 billion in profit last year, figures that should rise in 2011, the company said in May.
GE’s competitors include Rolls-Royce Group Plc and United Technologies Corp. (UTX)’s Pratt & Whitney. GE, through its CFM International joint venture with France’s Safran SA (SAF), is vying with Pratt to equip the new Airbus SAS A320neo in the largest segment of the global airline market, single-aisle jets. GE expects CFM to build about 1,300 engines a year through 2013.
Virgin America Inc., the airline partly owned by U.K. billionaire Richard Branson, today said it will be the first carrier to use GE’s new Leap-X, signaling confidence in the model after rival Pratt’s geared turbofan won the first wave of orders on the A320neo earlier this year. Leap-X will “have a good show,” Joyce said.
GE will begin producing its GEnx engine as Boeing Co. (BA) ships the first wide-body 747-8 and 787 Dreamliner models. The engine model is meeting certification and delivery schedules, Joyce said.
“You only get one chance to make a first impression with a new product,” he said. “One of the singular most important exclamation points on a great product is to put it into service successfully.”
Stronger Engine Unit
A stronger engine unit helps CEO Jeffrey Immelt’s aim to boost the share of profit from industrial operations and shrink the percentage contribution from the GE Capital finance division. Earnings from that unit peaked last decade at about half of the Fairfield, Connecticut-based parent’s total.
Engines from GE or GE-led ventures now power about two- thirds of the world’s narrow-body jet fleet, while about 53 percent of wide-body planes use the company’s products, according to market researcher Ascend.
By 2015, GE and its partners will have 30,000 engines installed on planes, 62 percent more than a decade earlier, the company estimated. Parts and service sales, which produce more of engine-makers’ profits than the turbines themselves, will rise as the equipment ages and requires maintenance. About 40 percent of GE Aviation engines now in use have yet to undergo their first overhaul.
GE Aviation has a $60 billion service-contract backlog. Development costs also fall once engines move into production.
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