I hope this note finds you well. It’s been a busy time at GE following the plan we announced to form three industry-leading, global, investment-grade public companies. Thank you for all the feedback and excitement for GE and our businesses that you’ve shared over the last few weeks.
During this defining moment in our company’s history, our teams are focused on executing what we laid out—including reducing leverage, continuing to improve operating performance at each of our businesses, and delivering for our customers shaping the future of flight, delivering precision health, and leading the energy transition.
While recent concern regarding the Omicron Covid-19 variant is driving continued volatility across financial markets, and we are watching developments closely, I’d like to share some highlights that illustrate continued financial and operational momentum across GE:
- We continue to put GE on stronger financial footing with our most recent debt tender, which we upsized to $25 billion last week. The chart below includes more details about this significant step and in response to requests from a significant number of investors, how we think about GE’s leverage going forward—including a simpler, more typical market method.
- At Aviation, this month’s Dubai Airshow marked the first major gathering in the aerospace industry since the pandemic began. GE and our customers shared several updates, from our partnership with Emirates to conduct a test flight using 100% Sustainable Aviation Fuel (SAF) by the end of 2022 to Akasa Air’s $4.5 billion agreement to purchase CFM LEAP-1B engines, spare engines, and services for its Boeing 737 MAX fleet. Read more on GE Reports, including how GEnx engines powered Etihad’s long-haul 787 flight on a SAF blend, results from testing our GE9X engine in harsh dusty conditions, and Emirates’ plans to use two new flight data solutions from GE that will help it improve fuel efficiency and reduce emissions.
- Healthcare is gearing up for the annual Radiological Society of North America (RSNA) trade show, which kicks off this week. We’ll have more updates to share from RSNA, including new innovations, with you tomorrow. In the meantime, the team announced that Karolinska Institutet and MedTechLabs began a pilot study of Healthcare’s photon counting CT system with Deep Silicon detectors*. This technology has the potential to significantly increase imaging performance for oncology, cardiology, neurology, and many other applications, all while exposing patients to less radiation than traditional CT scans*.
- Renewable Energy recently announced it will produce zero waste blades by 2030 by reusing, repurposing, recycling or recovering all excess materials from blade manufacturing, forgoing landfilling and incineration as waste management solutions. At Gas Power, the team announced the completion and delivery of the first repaired HA component from the recently opened Advanced Manufacturing & Repair Technology Center (AMRT) in Singapore. The start of HA component repairs at the recently opened center will provide H-Class combined cycle power plant operators faster support, reducing repair cycle time significantly.
In closing, I want to take a moment to thank all of you who voted on our behalf in the 2022 Institutional Investor rankings. Our team takes great pride in earning your trust, representing GE to the investment community and helping you with your investment process. We are looking to improve every day and we appreciate your constructive input that makes all of us better. We are extremely honored to receive the top rankings in our sector.
As always, please stay safe, thank you for your interest in GE and I welcome your feedback.
Additional detail: Strengthening our financial position
Last week, we announced early results of our debt tender, which we upsized to $25 billion.
A significant number of investors have shared with us their view of GE’s leverage on a basis more similar to other large cap companies they own. That definition generally includes bonds less 100% of the cash, with mixed treatment of preferred equity which, while it has both debt and equity like characteristics, sits above common equity. Going forward, with the recent debt tender now behind us, we are adopting a similar perspective. On a simple, typical market method more comparable to our peers, focused on 100% of the bonds, preferred equity, and cash only, given the long-tailed nature of pension obligations, we expect to end 2021 with ~$25B and 2023 with ~$10B of consolidated net debt. As shown in the chart below, this translates to ending leverage** of ~3 to 3.5x in 2021 and <1.0X in 2023.
We have multiple sources available to continue to delever, including rising free cash flow generation as well as our stakes in Baker Hughes and AerCap (~$11 billion, including notes, as of November 26).
On an alternative ratings agency method basis similar to our historical disclosure, we expect to end 2021 with a balance of less than $60 billion of gross debt (including borrowings, pension, operating leases, 50% of the preferred equity) and net debt** of <$47 billion (including 75% of cash). Including the debt tender actions announced here, GE has reduced ratings agency defined gross debt by more than $80 billion since the end of 2018. On that same definition, we expect to end 2023 with less than $45 billion of gross debt and less than $30 billion of net debt** with leverage of <2.5x net debt to EBITDA**.
There has been significant improvement to the pension deficit based on higher interest rates and asset returns. As of late November, we estimate a ~$5B improvement in our pension deficit (including Retiree Health & Life and after tax). We will finalize the annual pension revaluation impact at year end.
However you may choose to define leverage, we have seen and continue to expect rapidly declining leverage. This is due to GE’s significant momentum improving our financial position to drive sustainable, profitable growth.
For important information about forward-looking statements, please see here.
* Technology in development. Not for sale. Not cleared or approved by the U.S. FDA or any other global regulator for commercial availability.
** Non-GAAP financial measure