Aviation supplier’s manufacturing/services play a pivotal role in contributing direct, indirect, and catalytic/scale value to economies. GE Aviation (Evendale OH) is a subsidiary of GE Group, with $22bn (USD) or 15% of total revenue in 2013, offering (with revenue share of GE-Aviation); commercial engines (32%), services (37%), military-infrastructure (18%) and avionics/BGA/IS/Aero aftermarkets/parts (12%) (GE aviation presentation, 2015). The piece will feature issues faced, strategy and rectification of GE Aviation’s guest-presentation, including its history, landscapes, trends, products, life-cycles and value areas. From the given elements, issues and perspectives/opinions will be discussed on its commercial/service operations to fulfil customer demands (and its agreement), while debatable practices of sole-sourcing, oligopoly-trends, fuel burn (and maintenance/depreciation) optimism and recovery, PIP production/drivers, subsidies and operational transparency will be discussed in light of multiple perspectives and opinions.
GE Aviation began turbine production as early as 1900, before branching its own subsidiary-operations during WW1, investing in military aircraft powerplants (Geaviation.com, 2015). Commercially, GE began with the CFM-56, CF6 and military-derived prop-technology as re-engines and source for new aircraft projects to provide enhanced fuel and maintenance/depreciation economics (707, KC-135, A300/10, DC-10, 767 and 737-classics) (Cfmaeroengines.com, 2015). Today, GE Aviation’s projects and revenues involve tangible powerplant value areas of low-blade high multi-stage compressor, high-bypass composite fans as per industry-input beta value-requirements to optimize fuel economics of aircraft within its thrust requirement, hence reducing fuel consumption to reduce costs and risks associated to operating the aircraft (GE aviation presentation, 2015). This is one of many schemes GE-Aviation adopts to provide efficiencies to aircraft operations, with other developments seen predominantly (with associated growths) in:
-Partnering with recent Boeing-majority projects, with inventory-managed flyaway packaging and pricing-leverage (sole-sourcing/termed-exclusivity agreements by-product). This also includes matched pricing on discounting (Norris, 2015)
-After-sale care (maintenance, repair and overhaul), and GE-certified MRO consolidation (less expansive man-hours costs needed on rollover-stocks, larger-scale operations and extensive logistics) (Broderick, 2015)
-Geography-driven product facilitation and price-discrimination (recognition of environmental inputs and integration into financial modelling and tender)
-Performance-improvement packaging (involving hardware/software offering) driven by market conditions, capital sunk, incremental-development capability and maintenance schedules of operating-customers. (Norris, 2015)
-Analytics and fuel-management systems, driven by service-agreements with navigation-services and fuel/route optimization systems (witnessed heavy-growth with FMS-integrated rollout on 737MAX/A320NEO, 777/X, 787, C919 and 747-8 programs, along with software-driven MRO-operations and real-time ops-data. (Geaviation.com, 2015)
-Integrating/common-pooling resources and management from other GE-arms to maximize ROIC, revenue, asset utilization and efficiency. (Gecas.com, 2015) (Geaviation.com, 2015)
Across the aviation-supply chain, it’s distinctly clear and regarded that some elements, be it product/sale-agglomeration, after-sale care, price-discrimination, MRO consolidation, PIP-production and analytics are the way forward for the industry across the competitive and liberalized sphere today (GE aviation presentation, 2015), and are proven effective strategies for winning orders for current mature aircraft, even with competitive environment like the CF6 choice on A330ceo (Leeham News and Comment, 2014). Despite so, corporate-behaviours of GE Aviation which raises opinionated eyebrows amongst distinguishable members in the aviation-community, will be discussed.
With mention of product offerings and affiliation, one issue is GE’s anti-competitive nature in sole-sourcing and contractual exclusivity in project affiliation. Airlines and lessors bank on powerplant multi-sourcing thanks to performance and price driven competition (International Air Transport Association AGM, 2015). GE (along with RR) offers contractual affiliation as part of tender-selection and investment to create aircraft-model based monopolies, as observed in operational-blueprints inquiry into the recent A330neo (Flottau, 2014), and offer requirements. GE Aviation offers sole-sourced powerplant options on recent operational/announced Boeing aircraft like the 747-8 (GENx), 777-300er/200lr (GE90), 737NG (CFM-56), 737MAX (CFM-LEAP), and 777-8/9 (GE9X). This is a consideration airlines and lessors must take as a factor to their fleet choices, seeing that historically (and even till today), airlines enjoy affiliating independently (constituting self-reliance and scale growth) with their choices, maintenance, systems and service operations associated to powerplants utilized on aircraft and parameters it operates within. This means that an airline affiliated with single-source engine provider/powerplants, its MRO and service shops, would be complacent to buy aircraft of other engine providers, and would require heavy-frame discounting and 3rd-party service agreements to make up for overheads associated to commonality break-away, and viability of airliner operations. This in effect, raises concern of this being one of many macro-environmental factors airlines/lessors must take on to reduce costs, fabricating sub-optimal solutions hindering industry-development. This issue has been highlighted at the IATA AGM 2015 (MIA/FLL), where Willie Walsh (CEO of BA (LHR)) argued lack of engine choice and sole-sourcing regimes by GE and Boeing deterred British Airways from ordering the GENx powered 747-8, opting instead for the A380-800 with RR Trent900 and EA’s GP7200 powerplant offerings. Walsh also argued that the efficiencies of the 777-300ER over the RR-powered 747-400 was heavily impacted by overheads associated to new-powerplant operations (despite being one of the largest common-framed 777-200/ER operators) (International Air Transport Association AGM, 2015) (Aircraft Maintenance, Repair, & Overhaul Industry Today, 2015). This is suggested with 77W options not practised, and BA refurbishing its 744 fleet (London Air Travel, 2014). Contextualizing this, it’s evident that engine choice and competitions over product and price reaps volume and diversity in the order-backlog, which can be tentatively extrapolated (volumes based) as to why sole-sourced CFM-LEAP on 737max, GENx on 747-8 and GE9X on the 777-9/8 compares not well-off as oppose to respective competitive aircraft such as the CFM56 on 737/A320, GP7000 on A380, GENx on 787, and CF-6 on A330s/767 (Airinsight.com, 2015) (PWC – Airline Finance, 2015). The optimal solution to preventing suboptimal choices and improve aircraft fuel, maintenance and depreciation economics by users of the engines is to liberalize usage rights and consumer-watched oversight with reward/penalty systems over powerplant manufacturing, sales and services, and compatibility with aircraft.
Given the above and competitive fuel advantages mentioned in-presentation, another issue is optimism and recovery in GE’s powerplants and specific-fuel-consumption, predominantly to airlines, aircraft manufacturers, supply chains and customers. This contextualizes with the CFM-LEAP 1B on the 737-MAX(7/8/9) platform which missed SFC by 4-5% and may require 2-3 PIPs to reach target SFC (Bhaskara, 2015) (Bechai, 2015), and the GENx on the 787-8 9% more efficient than the 767-300ER according to LAN, being well under the 23% expectation (and requiring more PIPs and powerplant maturity to reach target) (FG-Limited, 2015). Powerplant optimism is usually initiated by a frame-defined catalysts with weak-feedback between powerplant manufacturer and frame manufacturer. An example is the given physical constraints on engine geometry on the 737Max underwing thanks to ground clearance requirements and de-facilitation of new landing gears. This hence required reduced bypass and increased wear/tear, increasing SFC, weight and drag, feed-backing further dipped efficiency in an operating-economics cascade (GE aviation presentation, 2015). Regaining of performance for a new frame is an inherent risk powerplant suppliers take on for tender-capability and competitive/distinctive edge over competition. And with CFM spending $2bn USD annually on the CFM Leap alone every year (Cfmaeroengines.com, 2015), it’s no wonder altering geometry and parameters to meet SFC demands through altering weights, pressure turbines, materials, compressor alterations gets extremely expensive on the bottom line for manufacturers (in conjunction with the 737’s sole-source LEAP-1B adjustments non-transferrable to the differentiated 1A), by which hence incremental investment to rectify performance-recovery and improvement can amount to up to 3 times more than development-investment and sunk-costs. But with this, GE-aviation and other powerplant manufacturers withhold development and PIP production as-per vested-interests and catalysts to respond to a competitive environment (with examples of improvement on GE90’s powerplant hardware/software to fill production gap with pricing power, and deter orders of the A350-1000 affiliated with the RR Trent-XWB (97) (Leeham News and Comment, 2015) and likewise with the CF6 on the A330 (but not so much; cannibalization of potential 787 sales with GENx engines), and CFM-56 with production ramp-ups and A320ceo and 737NG discounted sales (Norris, 2015). Counteracting this would require extensive work industry-wide (and not only GE-Aviation) on modelling scenarios with realistic parameters (beyond the brochure and contract legalities) and changing parameters and flexibility to meet new standards and operational niches desired to be filled of the aircraft, while not jeopardizing posted specific fuel consumption and economics, efficiencies and environmental-friendliness airlines and lessors wish to deliver. These are lessons that can be learnt in future developments of the GE9X, GENx developments, PIPs and extrapolation to other programs, and the ever-anticipated middle-of-market aircraft.
And given export and financial culture discussed; subsidies, cost-management and transparency of revenues plays a large issue in GE Aviation. GE-aviation, on one hand post cost-blowouts and program overruns, and in the other, is game-theory driven for diversified growth in other operations at the expense of complacency in context of powerplant high-sunk hardware and efficiencies. This, along with feats of lobbying and industrial actions to defend oligopolistic tendencies, such as threats of outsourcing if US ends subsidies supply (The Daily Caller, 2015), underpins that while unanimous agreement on issues product/sale-agglomeration, after-sale care, price-discrimination, MRO consolidation, PIP-production and analytics being the way forward for the industry and delivering efficiencies and environmental-friendliness is there, the core business of GE-aviation is powerplants (top down). Through effective competition in the market, realistic measures of efficiency consistent to constraints, and drive for transparent management with product/sale-agglomeration, after-sale care, price-discrimination, MRO consolidation, PIP-production and analytics, GE Aviation would be able to optimize the aviation industry for airlines and lessors, and enhance productivity, environmental and economic friendliness to aviation across chains and interfaces.
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