GE GE Aerospace

By Thomas Gryta 

General Electric Co. said it was cutting $2 billion in costs to offset falling sales and profits, as the company's aviation business was hit hard by the virtual halt to air travel because of the coronavirus pandemic.

The conglomerate's first-quarter revenue fell 8% and it posted operating losses in several of its business units, but the unit that manufactures and maintains jet engines was hardest hit.

Profits fell 40% in the aviation unit in the first quarter and the company expects a difficult second quarter. GE said commercial repair visits were down 60% so far in April and new engine installations were down 45%.

"This is an unprecedented decline in the aviation market and is likely to be challenging for a while," CEO Larry Culp said in an interview Wednesday. "We are well aware that it may take a while" for air travel to recover.

The conglomerate has been revamping itself under Mr. Culp with a focus on cutting debt and generating more cash but cut its first-quarter projections earlier this month along with pulling its full-year financial outlook.

GE on Wednesday reported first-quarter adjusted negative cash flow from industrial operations of $2.2 billion; it had projected negative cash flow of about $2 billion. The company said the pandemic reduced cash flow by about $1 billion and warned that second-quarter results will decline sequentially.

GE shares slipped 3% in premarket trading to $6.50 and are trading near multi-year lows. The stock tumbled in 2017 and 2018 after GE disclosed deep problems in its power unit and capital arm that forced it to slash its dividend and sell off business. GE hired Mr. Culp as CEO in October 2018 and he had made progress in streamlining operations before the pandemic hit.

In the interview, Mr. Culp said GE could use the crisis to speed up its own restructuring efforts. "In the process of reacting to what has hit us here, if we play our cards right we will accelerate the operational and cultural transformation of GE," he said.

"I think on the margin everyone understands, be it unions or be it governments, that companies are going to be reacting to this environment, " he said. "Does it help? It is too early to tell."

GE's aviation business was GE's biggest and most profitable in recent years as it benefited from a booming aerospace market and investments, including the launch of GE's most advanced engine to power Boeing Co.'s MAX jet.

On Wednesday, Boeing said it would further reduce its aircraft production and cut 10% of its workforce. Rival Airbus SE is cutting output by a third. Travel bans and restrictions are expected to halve global air travel in 2020 and left airlines unwilling or unable to take new planes.

The company is also one of the world's biggest airplane leasing companies through its GE Capital unit. GE said Wednesday that most of its airline customers are seeking short-term deferrals, but it expects many airlines to receive government support. GE said it is preparing to repossess some jets, as well as restructure existing deals. It took a $45 million impairment in the first quarter on its nearly 1,000 jet fleet.

GE, which started the year with about 205,000 workers, has already announced some job cuts and furloughs in the aviation unit, which had 52,000 employees. The company said Wednesday it was accelerating job cuts and restructuring in its power and renewable energy units, citing a reduced outlook for projects and investments in those sectors.

The company cut 10% of its U.S. aviation workers and furloughed thousands more. It laid off 700 workers in the power unit and about 1,200 contractors, according to a securities filing.

The power unit, which makes turbines for power plants, swung to a quarterly loss of $129 million while the renewable energy unit, which mostly makes wind turbines, lost $302 million. The health care unit, which makes hospital equipment including ventilators, posted higher sales and a 15% jump in profits.

Overall, GE reported net income attributable to common shareholders of $6.2 billion. The results were boosted by the sale of the part of its health-care business and gains on GE's stake in Baker Hughes Co.

Excluding those gains, GE said its adjusted earnings were 5 cents a share, compared with a Wall Street estimate of 8 cents a share. Revenue fell to $20.5 billion, just below analyst expectations of $20.83 billion, according to FactSet Research.

GE said it ended March with $48 billion in cash and equivalents, boosted by the sale of its biopharma division to Danaher Corp. for proceeds of more than $20 billion. The company also issued $6 billion in debt in April and used it to eliminate near-term maturities. The company said it is committed to paying down its long term debts, but it now expects to take longer to reach its goals.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

April 29, 2020 08:54 ET (12:54 GMT)

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