Demand Propels GE Aircraft Repair Business
Chris Tyler, a magnet magnate, worries about getting stuck in a grounded jetliner because of the tight scheduling of his meetings on both sides of the Atlantic.
“There’s no room to spare for something to go wrong,” said Tyler, who travels from Cincinnati to Europe, Tokyo and Taiwan as president and chief executive officer of Kane Magnetics International Inc., a producer of magnetic assemblies used in cars.
The demand of business travelers for reliability in air transport is putting pressure on airlines to reduce downtime for their aircraft. And this has benefited General Electric Co., which is seeing rapid growth in its engine overhaul and maintenance service for airlines.
About 9,000 GE jet engines are in use on commercial planes, but GE Engine Services Inc. goes beyond just servicing them. It has quickly expanded during two years of acquisitions and joint business ventures worldwide by servicing other manufacturers’ engines and establishing quick-response shops.
The growth comes in a tough environment because the post-Cold War reduction in U.S. military spending has coincided with cost-cutting by airlines. And GE faces head-to-head competition with longtime rivals Pratt & Whitney and Rolls-Royce in engine production.
GE Aircraft Engines has slashed its worldwide employment from 44,000 to 22,000 since the 1980s, so the success of its services affiliate is a nice change.
“It’s a lot more fun to be in the growth mode than in the retraction mode,” said John Abbott, general manager of services marketing.
“Today, the service side of GE Aircraft Engines is seen by the best and brightest as the place to be,” GE Chairman John F. Welch Jr. told shareholders in April.
GE Engine Services received orders worth more than $3.6 billion last year, up $1 billion, or 38%, from 1996. It won multiyear maintenance and overhaul contracts worth more than $6 billion, up more than 45%. That included deals with US Airways, Emery Worldwide, American Airlines and Federal Express Corp.
In April, GE Engine Services said it signed a 10-year deal with Continental Airlines, worth as much as $1 billion.
Other airlines, such as Lufthansa, consider it worthwhile to use their own personnel.
“For any particular airline, it’s an individual decision of whether they want to be in the business of doing engine overhauls or not,” said Bob Robeson, vice president of civil aviation for the Aerospace Industries Assn., a trade organization.
Manufacturers such as GE, Pratt & Whitney and Rolls-Royce have the expertise to maintain engines that operate under extreme conditions and high heat, and they have the expensive equipment needed to support repair crews, Robeson said.
They also have learned how to fix each other’s engines and to locate repair shops and crews where they are needed, he said.
“It enables them to stay close to the customer,” Robeson said.
In years past, GE and other manufacturers met competition by selling their jet engines at little profit, hoping to make more money on the spare parts that the engines would need during 15 or 20 years of use. But increasingly reliable engines and stiffer price competition have cut into those profits.
GE Engine Services’ $530-million acquisition of Greenwich Air Services Inc. and $330.5-million takeover of UNC Inc. in September 1997 increased repair capabilities, giving the company more U.S. sites and a European foothold in Prestwick, Scotland. Its work force grew to more than 14,000.
The company also has expanded GE On-Wing Support Inc., a subsidiary formed to provide rapid maintenance support to airline customers 24 hours a day, every day.
On-Wing Support’s bases in England and Cincinnati/Northern Kentucky International Airport are being supplemented with sites in Dallas, New York and Miami.
GE Engine Services’ goals now are double-digit business increases for the next five years, expanding into China and gaining U.S. government engine maintenance work as Washington moves toward using private contractors at military depots, Abbott said.