Larry Culp has been on a mission to transform GE ever since he joined the company as chairman and CEO in late 2018. GE took another big step down the transformation path Wednesday by agreeing to combine its aircraft leasing business, GE Aviation Capital Services (GECAS), with Ireland’s AerCap. Valued at more than $30 billion, which includes $24 billion in cash and some $6 billion in a 46% stake in the combined business, the transaction will create one of the industry’s largest franchises leasing planes, engines and helicopters.
“We're not selling today,” Culp said. “What we're really doing is combining these companies, investing, if you will, in a stronger aviation leasing platform [and] over time we’ll monetize that equity stake.” But he stressed that “the real story for the shareholder” is less about the transaction today and more about what it means for the future.
Culp said he was “excited about the strategic opportunities in front of us” and told investors who joined him on the annual GE Investor Outlook call that the deal will help GE reduce its debt, accelerate its industrial transformation, and allow it to play offense. “This deal marks our transformation into a more focused, simpler and stronger industrial company with leading positions in power, renewable energy, aviation, and healthcare,” he said. “This drastically simplifies GE with one set of financials for these four industrial segments. Over the last two-plus years, we’ve been strengthening GE, improving our performance, operations and culture. Coupled with this transaction, we are reshaping our foundation to continue driving sustained improvements.”
Carolina Dybeck Happe, GE’s chief financial officer, told investors after the closing, the cash will help GE cut its debt by about $30 billion and shrink the company’s debt by $70 billion since the end of 2018. “This reduction, combined with significantly improved earnings, creates a clear path to reach our industrial leverage target,” Dybeck Happe said. She said, for 2021, GE expected adjusted earnings per share to be in the range of 15 cents to 25 cents.
Culp said GE had momentum and intended to build on it. “I have real confidence in our ability to unlock upside potential and deliver value for the long term as we focus on sustainable improvements in growth, cash generation and profit, which will lead to high single-digit free cash flow margins over time,” he said.
Many of these improvements are rooted in lean management. Centered on continuous improvement, lean is the foundation that has allowed GE to progress quickly even during the COVID-19 pandemic. “Lean is not an initiative; it’s a way of thinking that at its core revolves around problem-solving and continuous improvement to create value for our customers,” Culp said. “We’re implementing a standardized lean operating model designed to drive the highest impact.”
For example, lean has helped GE Renewable Energy save millions of dollars by finding a more efficient way to manage its inventory and services. GE Gas Power has used the approach to improve the way it manufactures generators, and GE Healthcare and GE Aviation partnered on a project that sped up the production of patient monitors for clinicians fighting the pandemic. “Scaling lean and shifting decision-making closer to our customers are helping us execute better and transform our culture — so that these improvements are both continuous and lasting,” Culp said.
Culp said that lean, as well as improvements in working capital, were helping GE position itself “to capture opportunities in our end markets, where we are leading the energy transition to drive decarbonization, precision health that’s more integrated and personalized, and a future of smarter, more efficient flight. This is why GE exists.”
Top GE executives leading GE businesses and GE Research joined Culp and Dybeck Happe on Wednesday’s call to present outlooks for their units. You can find the full 2021 Outlook presentation, including expected segment performance, on the investor relations website.
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