Jet engine makers are rare. Airframe manufacturers have to source them from a limited pool of suppliers, dominated by the likes of Rolls Royce, Pratt & Whitney, and General Electric Company (NYSE:GE). However, the latter manufacturer dominates the market, helping to lift GE stock in a highly competitive sector.
Not surprisingly, GE is trading at a five-year high in the $30.00 range, but it could easily get back to its all-time-high range of $59.00 per share, thanks to a revamped overall strategy. GE has reinvented itself, shedding its financial services units to generate the capital to invest in its core industrial activities, especially power generation.
Nimbler GE Can Focus on What it Does Best
Airplane engines take as many years to develop as the airplanes themselves. However, GE and the related CFM (made in collaboration with France’s SNECMA) are already-made engines, fitted on a number of the world’s most popular aircraft from Boeing to Airbus, including the popular “A320” and “Boeing 737” models. GE sells engines to the two top producers in the single-aisle 120–200-seat aircraft market as well as new entrants, like China’s COMAC C919.
Currently, of the 26 “A330 MRTT” aircraft that are on active duty in the Air Force (eleven in the United Kingdom, five in the Royal Australian Air Force, four in the United Arab Emirates, and three to six in Saudi Arabia), the Australian ones use GE engines. (Source: “GE Jet Engine Selected by EADS/Airbus for Australian Tanker,” GE Aviation, April 20, 2004.)
GE-propelled Royal Australian Air Force (RAAF) A330 MRTTs have ran several NATO missions against the Islamic State. Saudi Arabia and other Gulf countries have used similar aircraft in missions against Houthi rebels in Yemen. The A330 MRTT is used both for transport and for refueling in the air.
The RAAF was the “launch customer” for the GE engine–equipped Airbus air tanker, entering service four years ago. It is qualified for refueling a wide range of fighter jets, ranging from the “F-18 Hornet” to the brand new “Lockheed Martin F-35,” through the French made “Dassault Rafale,” the “Tornado,” the “Typhoon,” and the “Mirage 2000.” Additionally, the A330 MRTT can refuel large aircraft, such as the “AWACS,” “C-130,” and the “A400M E-7A Wedgetail” transporter. General Electric also powers many of the latter aircraft, including the F-18 and F-16.
For the future, GE has designed an adaptive cycle engine as part of the U.S. Department of Defense’s Adaptive Versatile Engine Technology (ADVENT) and Adaptive Engine Technology Development (AETD). In this engine, airflow is adjusted to improve fuel efficiency, while increasing thrust, range, and speed of a given military aircraft, meaning it can strike more targets across a wider distance.
Airplane Engines Just One Part of GE’s Activities
Of course, the value of General Electric’s stock depends only in part on the fortunes of its aviation unit, even if GE makes and sells more aero engines than any other manufacturer.
Indeed, GE has a strong presence in the energy sector. Recently, GE acquired Alstom Energy, one of the largest industrial groups in Europe, for more than $12.0 billion. France may have lost one of its industrial flagships, while GE has gained a powerhouse in power generation, gas and steam turbines, and offshore wind and electric networks. (Source: “General Electric boucle l’acquisition du pôle énergie d’Alstom,” Le Monde, November 2, 2015.)
GE stock will benefit from the strategic Alstom acquisition because the Fairfield, Connecticut-based conglomerate will now be able to refocus on its core businesses after a period of considerable restructuring. In 2014 and 2015, GE sold its financial activities, GE Capital, which accounted for some $43.0 billion in 2014, or 27%, of its revenue.
GE has earned about $126 billion from the sale of GE Capital, allowing it to strengthen its key areas of energy, as well as aerospace, medical devices, oil services, and industrial software via GE Digital. Alstom will allow GE to increase its gas turbine market presence by 50%, making it the world leader in energy equipment. Its closest competitor, Germany’s Siemens, lags far behind. (Source: Ibid.)
As for aerospace, it is hard to keep track of all GE’s supply and development contracts, given the sheer magnitude of its Aviation division’s reach alone. Nevertheless, GE stock will become stronger still as Emirates Airlines of Dubai announced that it has signed a $16.0-billion contract with GE Aviation for the maintenance, repair, and overhaul of the “GE9X” turbofan engines powering the carrier’s 150 “Boeing 777” fleet. (Source: “Emirates signs $16 billion engine deal with GE for 777x fleet,” Reuters, November 9, 2015.)
GE Aviation has also won a contract with Textron to power the latter’s new single-engine turboprop aircraft. This is huge for GE, because it had to beat none other than Pratt & Whitney Canada, which has a near hegemony in the 850–1600 HP turboprop engine niche with the “PT6” family. GE’s new engine uses 20% less fuel than its “PT6A” competitor. (Source: “GE announces new turboprop engine for Textron’s aircraft,” Venture Capital Post, November 18, 2015.)
All of this could be a catalyst for GE stock in 2016.