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Investor Update: Recent Milestones And Post-Earnings Q&A

Steve Winoker
November 15, 2019
For important information about our forward-looking statements, please see here
We are off and running halfway into the fourth quarter and our 2020 budget planning, but I wanted to take a moment to share some updates from our businesses which continue to innovate and expand GE’s global network.

Additionally, we received dozens of investor phone calls and e-mails with constructive feedback and questions about our 3Q earnings results (as is typical).  I thought it’d be helpful to address the Top 5 questions we received, which can be found towards the bottom of this week’s newsletter.

In case you missed it in our 3Q’19 earnings materials, we also announced our earnings dates for the next four quarters, which are as follows:

  • 4Q’19 – January 29, 2020

  • 1Q’20 – April 29, 2020

  • 2Q’20 – July 29, 2020

  • 3Q’20 – October 28, 2020


Finally, GE Healthcare President and CEO Kieran Murphy with be joined by members of his leadership team to host a GE Healthcare Investor Day on Monday, December 2nd from 8:30am -10:30am CST (updated from 8:00am based on investor feedback) in conjunction with the RSNA annual meeting. Materials and webcast information will be posted to GE’s investor website ahead of the event.

Thanks for your interest in GE,

Steve Winoker
VP Investor Communications




GE Power announces a new Global HA Repair & Development in Singapore

Above: Scott Strazik, CEO of GE Gas Power, Dr. Beh Swan Gin, chairman of the Singapore Economic Development Board, and members of the Gas Power leadership team celebrate the launch of GE’s new HA Repair Engineering and Development Center in Singapore. Top image credit: Airbus.

Our team at GE Power has been putting our HA gas turbine technology to work for customers, marking a series of important milestones for innovation and growth over the past several weeks including:

  • Received its 100th HA gas turbine order from customer MYTILINEOS for its Agios Nikolaos Power Plant in Greece

  • Celebrated POWER Magazine’s recognition of Invenergy’s Lackawanna Energy Center (powered by 3 7HA.02 gas turbines) as a 2019 Top Project in Gas

  • Introduced the 7HA.03 gas turbine as the next evolution in the HA gas turbine platform. The 7HA.03 offers substantial improvements in three key areas: greater capacity and performance, enhanced flexibility, and lower capital costs and installation time


Last week, the team also announced that they will be investing up to $60 million over 10 years and adding about 160 jobs to create a new HA Global Repair Engineering and Development Center in Singapore. The new Center of Excellence will help increase GE’s repair development capabilities in Asia as the HA fleet continues to grow globally.

CEO of GE Gas Power Scott Strazik, said, “The new center for our industry-leading HA gas turbine technology is expected to become one of GE’s largest gas turbine repair facilities globally servicing our HA and Aeroderivative gas turbines. In addition, it will allow us to better serve our HA customers in Asia as we provide localized support and expect to reduce HA repair cycle time for them by up to two months.”




GE Renewable Energy’s Haliade-X arrives in Boston, produces first power

Above: The 107-meter-long blade designed for GE’s Haliade-X 12 MW offshore wind turbine will undergo fatigue tests at MassCEC’s Wind Technology Testing Center (WTTC) in Boston over the next few months. Image credit: GE Renewable Energy.

Last week, the Renewable Energy team announced that the first blade for its Haliade-X, which will be the world’s most powerful offshore wind turbine when it enters operation, was delivered to the Massachusetts Clean Energy Center in Boston, MA for testing. The 107-meter blade will undergo a series of fatigue tests that involve moving it millions of times over the period of a few months to validate that it can withstand more than 25 years of operation at sea.

At an event in Boston with local government officials and our customer Ørsted, who recently selected the Haliade-X as its preferred technology for over 1,200 megawatts of offshore wind projects in Maryland and New Jersey, GE Chairman and CEO Larry Culp said:

“We think the Haliade-X is the right turbine at the right time as the offshore industry is poised to take off. GE is the first manufacturer to cross the 10MW threshold with the Haliade-X program, a 12MW project. The Haliade-X’s 63% capacity factor will allow us to deliver more energy off of a discrete wind farm and to do that at a lower cost. And again, feeding that lower cost, more reliable energy mantra that we are driving.”

According to a recent International Energy Agency (IEA) report, the Offshore Wind space could be a $1 trillion industry by 2040. As the industry continues to grow, GE Renewable Energy will continue to innovate and improve operations to become a key industry leader. Last week, the Haliade-X 12 MW prototype in Rotterdam-Maasvlakte, also successfully produced power for the first time. The team will now proceed with the testing phase, during which GE will perform different types of measurements to obtain a Type Certificate for the Haliade-X.






GE Renewable Energy secures onshore wind agreement

GE Renewable Energy and China Huaneng Group Co. Ltd.  signed an agreement at the China International Import Expo (CIIE) to build a 715MW onshore wind farm in Puyang, Henan Province, China. The deal consists of 286 units of GE’s 2.5 megawatt and will power the equivalent of 500,000 homes in Henan Province, China.

This agreement represents GE’s largest-ever wind order in Asia, as well as the single-largest onshore wind deal ever awarded to a non-Chinese wind turbine generator OEM in China.  Jérôme Pécresse, President & CEO of GE Renewable Energy, said “GE has a long history in China, and we are excited to have this opportunity to continue to learn locally and grow together, with technology specifically developed for the region.”

China is expected to add an average of 25 gigawatts (GW) of grid-connected wind capacity annually from 2019 to 2028, according to Wood Mackenzie Power and Renewables, and onshore wind power will lead this growth with 84% of the total new capacity.






CFM and Qatar Airways reach LEAP-1A engine agreement

Qatar Airways announced that it has selected LEAP-1A engines from CFM International, a joint venture between GE and Safran Aircraft Engines, to power its new fleet of 50 Airbus A321neo family aircraft. In addition, Qatar Airways has signed a Rate-Per-Flight-Hour (RPFH) support agreement to cover its entire fleet of LEAP-1A engines, including spares, for a combined total value of $4 billion at list price. This is the largest-ever A321neo order in the Middle East.

Qatar Airways Group Chief Executive, His Excellency Akbar Al Baker said “We chose the LEAP engine based on its proven efficiency in commercial operation. This engine addresses our strategy to operate a state-of-the-art fleet with the most advanced technologies in the industry, while expanding our network and maintaining the best flexibility for our customers.”

This $1 billion deal highlights commercial aviation growth globally. In an industry survey released in September, Airbus forecast the need for more than 39,000 new passenger and cargo planes, nearly doubling the existing global fleet of 28,000 aircraft to 48,000 by 2038. To date, more than 34,000 CFM engines have been delivered to more than 600 operators around the world, and a CFM-powered aircraft takes off somewhere in the world every two seconds. The growth in the Aviation industry provides tremendous opportunities for suppliers, airlines, and lessors in the future.









CFM finalizes $1 billion order in China






Colorful Guizhou Airlines also finalized a 12-year Rate-Per-Flight-Hour (RPFH) Agreement for CFM’s LEAP-1A engines that will power the airline’s future fleet of up to 35 Airbus A320neo aircraft, along with five spare engines. This deal that CFM, a joint venture between GE and Safran Aircraft Engines, initially announced at the Paris Air Show has been expanded and is now worth approximately $1 billion at list price.

“We are honored to further expand our relationship with Colorful Guizhou Airlines. Our relationship with the Chinese aviation industry goes back nearly 35 years and these new agreements further strengthen these very important ties,” said Gaël Méheust, President and CEO of CFM International.

GE Aviation also recently announced a 12-year TrueChoiceTM services agreement with China Southern Airlines for systems support across their Boeing 787 fleet. The TruChoice solution is designed to help operators, lessors and MRO’s maximize value across asset life cycles. GE Aviation does this  by accommodating customers needs and operational priorities with an unmatched breadth of services and materials. “We are already seeing the benefit of our partnership with GE on this program,” said Mr. Li Zhigang, senior vice president, Maintenance & Engineering Division, China Southern Airlines Company Limited.








GE Healthcare partners to open first hospital command center in Europe






Above: GE Healthcare’s managing director, Kerrie Hauge, at Bradford Teaching Hospitals NHS Foundation Trust, explains how the Command Centre’s “Wall of Analytics” constantly pulls in streams of real-time data from the multiple systems at the hospital.


Bradford Teaching Hospitals NHS Foundation Trust has opened the first Command Center in Europe in collaboration with GE Healthcare, with the goal of reducing wait times and making the experience of being in hospital smoother, faster and more efficient for patients.



Using advanced analytics and machine learning, GE Healthcare’s technology allows the Command Center staff to monitor a ‘wall of analytics’ that constantly pulls in streams of data from the Trust’s electronic patient record system and other sources of data to make quick and informed decisions on patient flow across the hospital.

“Demand for services is growing at Bradford Teaching Hospitals every year, with up to 400 patients coming through our A&E every day, and we have to get smarter at how we manage the needs of patients with the resources we have,” said Sandra Shannon, Chief Operating Officer and Deputy Chief Executive at Bradford Teaching Hospitals NHS Foundation Trust.

This is the seventh Command Center GE Healthcare has launched to date, and customers are already starting to see the benefits of these investments.  For example, since its opening in 2016, John Hopkins Hospital Command Center has seen improved access for sick patients by 78 percent, reduced ED patient waiting by 35 percent, and reduced patient waiting following surgery by 70 percent – all during an 18-month period when inpatient occupancy grew eight percent. According to a report by Accenture, 41% of surveyed healthcare executives ranked artificial intelligence as likely to have the greatest impact on their organization over the next three years.







Top five questions (and our answers) that we received after our 3Q’19 earnings call

1. Can you describe some of the proof points that the GE turnaround is really happening, especially at Gas Power?

While we still have a lot of work to do across our portfolio, we are starting to see some real operational improvements as our Lean transformation gains traction. As I talked about in September, I joined Larry on some of his frequent plant visits, and saw progress ranging from value stream mapping underway at our Aviation plant in Durham, NC to seeing Healthcare operators using visual management boards in Florence, South Carolina to line improvements at Gas Power in Greenville, SC. Together with our rhythm of operating reviews, these visits highlight to me that the operational progress across the company is tangible—first in our operating metrics, and then ultimately for our customers and in our financial results over time.

Lean action workouts are taking place across the company. Gas Power continues to stabilize (more below) and we are seeing granular, daily management lead to more of a continuous improvement mindset across safety, quality, delivery, cost and people metrics for all our businesses. For example, Aviation continues to make progress on its billings and collections processes in commercial services as well as spare parts on-time delivery to customers. Healthcare is seeing sequential improvement in on-time delivery to customers in HCS, and especially in imaging, as well as payment and collection processes. Renewable Energy is improving project execution and fulfillment leading to better delivery and cost metrics.

Specifically on Gas Power, we continue to see stabilization across the business, especially in the areas that we control. On the equipment side of things, not only are we underwriting better deals with more of a risk-based approach, but we’re also executing projects with fewer surprises. This can be seen in our year-over-year organic margin improvement of 1,450 basis points. On the services side, revenue did decline in the quarter but our gas turbines under long term service agreements are running more (as indicated by increased utilization and billings), and we’re improving visibility on both transactional work and upgrades. Operationally, the team is focused on continuous process improvement, especially as it relates to working capital management. As an example, the team made changes to its billing & collection processes which has resulted in both sequential and year-over-year improvement in past due invoices. Finally, fixed costs in the quarter were 12% lower than last year, and we remain on track to hit our goal of $800M of cost out over 2019 and 2020.

Our lean transformation is key to driving better performance in our multi-year transformation and we will continue to update you in future newsletters.




2. You keep saying that you “expect to make significant progress on your Industrial leverage goal of less than 2.5x net debt to EBITDA by the end of 2020.” How will you offset impact of the low interest rate environment? 

As a reminder, we have consistently indicated that we expect to make significant progress towards our Industrial leverage target by the end of 2020. As part of this plan, we have committed to reducing net debt to less than $30B, and we believe we can achieve this inclusive of the current interest rate environment.

Think about starting with the $55B of industrial net debt at the end of 2018. We have identified ~$38B of cash sources over 2019/20 with which to de-lever and de-risk our balance sheet, and year to date have collected ~$9B with the Wabtec and BHGE transactions.  We also have identified $25B of uses for this cash in order to achieve our deleveraging targets, and we have started to take action.  In September we completed a ~$5B debt tender, and in early October we announced comprehensive pension changes which we expect will reduce our pension deficit by $5-8B and our net debt by $4-6B.

As of the end of the 3Q’19, we estimated that the lower interest rate environment along with our stronger pension asset performance would result in a $6B pension deficit headwind.  Our deleveraging plans have built-in contingency to accommodate unknowns like this and we will remeasure this liability again at year end.  Going forward, we will continue to evaluate other deleveraging actions considering economics, risk mitigation, and optimal capital structure.




3. Your 2019 guidance says that you’re targeting Aviation free cash flow (FCF) to be roughly flat versus 2018.  What items are offsetting the $1.4B of FCF pressure from the MAX?  What does this do to 2020?

As we have indicated since earlier this year, there are other items in the year that offset the $1.4B of pressure related to the 737 MAX grounding which have allowed us to maintain our guidance of roughly flat to 2018. More than half of the offset to the MAX pressure comes from lower allowance and discount payments as a result of lower aircraft shipments from airframer customers than originally contemplated in our outlook. In addition, we had higher commercial services billings driven by higher flight hours and, to a lesser extent, some timing related items that will be outflows in ’20.

As for 2020, Aviation free cash flow will be impacted by multiple variables. The reversal of the $1.4B cash headwind in 2019 related to MAX is difficult to predict as it depends on multiple variables including the timing of re-entry to service, the logistics of getting the fleet flying again, and the profile of the Boeing production schedule. As for the lower allowance and discount payments, the reversal of this 2019 tailwind will depend on aircraft delivery timing. We will provide more information on these puts and takes as part of our 2020 outlook.




4. How much of your Aviation profit in the quarter was from selling LEAP spare engines to GECAS?

In 3Q’19, our spare engine deliveries were in line with purchase order commitments and the impact on profit was <$100M (consistent with what we disclosed in the 10-Q).

We continue to ramp our LEAP program volume, which will naturally include more spare engines. We are also in a unique scenario with the 737 MAX grounding and expect spare engine sales to be higher in the 4th quarter of 2019 as we help customers (both airlines and lessors) prepare for re-entry into service, an area where there is a lot of work to do.

Importantly, the ratio of spare-to-install engines is in-line with what we have seen through entry into service on other engine programs. Looking forward, we expect spare engine sales in 2020 to be roughly in line with 2019, although the mix is likely to differ. It’s also worth noting that there is no impact on industrial profit or EPS for the (internal) GECAS part of demand as these profits are eliminated at Corporate.




5. GE Capital earnings were better than expected. Is this sustainable?  Will you break even in 2020?  Any change to the parent funding plan?  

GE Capital’s results were better than expected reflecting strong execution in asset sales (GECAS, PK, EFS), business operations and tax. As a result, we raised guidance for continuing operations from $(0.8)B - $(0.5)B to $(0.3)B – $(0.1)B.  Keep in mind that for businesses like GECAS, a regular part of their business model is selling assets to manage risk and portfolio composition as their skyline is delivered and placed.

There is no change to our guidance for 2020—keeping in mind that due to the $10B of asset reductions, we will have a smaller asset base at GE Capital from which to generate earnings as well as a lower level of earnings from asset sale gains.

There is also no change to our parent funding plan of $2.5B in 4Q’19, and some level of support in 2020 (albeit at a significantly lower level than ’19) likely for required insurance statutory funding.