General Electric badly needs cash, and it would get a barrelful if it sells GECAS, its $40 billion aviation leasing unit, as rumored. But this would not be a welcome move for GE aero engines.
GE is remarkably successful as a jet engine manufacturer. It’s the biggest in twin-aisle jets, and, through its CFM partnership with France’s Safran, the biggest in single-aisle jets, too. This success rests on three legs.
One is engineering. The company is generally viewed as building the world’s best engine hot sections, which are the primary (but not exclusive) determinant of fuel efficiency. This has not changed.
The second leg is GE’s financial strength. In exchange for up-front contributions to aircraft development programs (helping to pay for certification costs, etc.), GE has been able to argue that its engines should enjoy sole-source status on several important jetliner programs. For decades, Boeing’s 737 has exclusively used CFM engines, while its competitor, Airbus’s A320 series, offers a choice of CFM or Pratt & Whitney engines.
An engine with sole-source status enjoys better pricing than an engine offered in a competition with others. GE’s corporate woes over the past few years have greatly constrained the company’s ability to help here.
The third leg is GECAS. GECAS basically guarantees that new aircraft with GE engines enjoy an up-front boost with a large lease company order. This further incentivizes manufacturers to go with GE engines on a sole-source basis. The second and third legs have resulted in the world’s most successful sole-source aircraft engine combinations: the 737 Classic, 737NG, and 737MAX series, the 777-200LR/-300ER, and the new 777X.
Losing GECAS would weaken GE’s ability to persuade jetmakers that it should enjoy sole-source status on new programs, such as Boeing’s long-awaited New Midsized Aircraft (NMA). It would strengthen Pratt & Whitney and Rolls-Royce’s argument to Boeing, and to Airbus on any future product launches, that they should be allowed to compete with alternative engines.
Selling GECAS won’t immediately change GE’s status as the world’s biggest jet engine manufacturer, and it won’t impact its ability to design and build remarkably efficient and reliable jet engines. But it does signify a weaker position for the company, and the first tangible proof that GE’s broader corporate problems are having an impact on the company’s healthiest and most successful unit. It will take years to play out, but selling GECAS will damage GE’s long-term aviation market standing.
