GE’s Slattery Eyes Acquisitions, Wants ‘Sober Analysis’ Of Narrowbody Demand
DUBAI—GE Aviation CEO John Slattery says he has “the full support for growing aviation” should there be a good business case for adding to his company's research capabilities or for an acquisition.
“We may look to bring some more expertise around the hybrid element [of future engines] in some fashion,” Slattery told Aviation Week on the sidelines of the Dubai Airshow.
In particular, he was referring to areas around electrification, a part of the Revolutionary Innovation for Sustainable Aviation (RISE) project, which was launched together with its CFM International partner Safran. RISE is a technology R&D program aimed at bringing an open rotor-type engine to market by 2035. Around 300 different technologies are being worked on as part of it.
Just days before the air show, General Electric had announced that it plans to sell its health care and energy businesses to focus on aerospace. The transition to becoming an aviation-focused business is expected to take around two years. But Slattery stresses that in that period it is “business as usual” for the aviation business. Acquisitions could also be made before the spin-offs have been completed.
Slattery is not worried about making the future GE too dependent on aviation cycles. “Focus trumps synergies and diversity,” he said. He argued that investors wanted more clarity about where their investments were going as well as greater accountability and focus on R&D funding and capital expenditure. Also, since the majority of GE Aviation revenue comes from servicing engines rather than selling them, the flows are “more linear.” Slattery also said that GE Aviation’s military engine business delivers some protection against civil cycles.
With all of the work of divesting other businesses taking place at the corporate level, Slattery said “the unique positive in the transaction is that my team and I don’t have to spend an enormous amount of time on IPO filings,” and are therefore not distracted from running the company.
One of the key elements that GE Aviation is working on as part of RISE is a gearbox that will be part of the open rotor engine architecture. While there will be other pieces of technology that can be fed back into the existing engine programs—such as the Leap powering both the Boeing 737 MAX and the Airbus A320neo as part of continuous improvement initiatives—the gear is not one of them in the short- to medium-term. Slattery only expects GE to have that core piece of technology ready by the “early or mid 2030s.”
According to Slattery, an engine derived from the RISE would be scalable for aircraft from 100 seats to “the largest narrowbodies or even beyond.” Should Boeing decide to launch a new aircraft larger than the current MAX in the coming years, it would face the prospect of having to compete with a RISE-based engine not much later. Slattery said that, should Boeing launch a new program, “we will look at that business case coupled with our own business case and the size of that market.”
Another element for competitive dynamics are Airbus’ ambitious growth targets. The Boeing rival is raising output from 40 A320neo family aircraft per month to 65 by the middle of 2023. Should Boeing lose too much share at the upper end of the narrowbody market as a consequence, the company might feel forced to act sooner despite the prospect of having to rely on an engine that could lose competitiveness relatively soon after entry-into-service. That step would conceivably also not be in GE Aviation’s interest.
“There are regularly different perspectives about the growth of the marketplace and differing views on the utility lives of aircraft,” Slattery said. Airbus Chief Commercial Officer Christian Scherer said Nov. 13 that the average retirement age of passenger aircraft is expected to decline from 24-25 years to 22-23 years. If this comes to pass it would impact the aftersales revenues of engine OEMs.
While GE Aviation has put the capacity in place to serve the rates of more than 60 aircraft reached by Airbus before the pandemic, mid-term narrowbody demand “is under discussion.” Slattery recommends letting “the natural process play out” but cautioned that there are “unique dynamics in the market place” and OEMs should be “very sober in the analysis of demand.”
As for widebodies, Slattery expects demand to return to 2019 levels by the first quarter of 2024. Should governments “infuse more confidence in the flying public” by taking away travel restrictions, the recovery could happen sooner, he remarked. “Airlines I speak to are getting more optimistic about next spring and summer.”