GE’s Cash Flow Slowed by Boeing MAX Grounding
Helps make the jet’s engines, and the grounding could drain up to $1.4 billion from cash flow this year
Just as General Electric Co. says it is making progress on some of the conglomerate’s thorniest problems, the extended grounding of Boeing Co.’s 737 MAX jet is now putting a fresh strain on its finances.
GE, a longtime aerospace supplier and major buyer of commercial planes, warned Wednesday that the grounding could drain as much as $1.4 billion from its cash flow this year as its factories produce fewer engines for the aircraft and cannot get fully paid for them. The MAX jet is powered exclusively by LEAP engines made by GE in partnership with France’s Safran SA.
“When Boeing delivers the airframes, we will get paid for those engines. It’s just a delay in cash timing,” said Jamie Miller, GE’s outgoing finance chief. For now, that means GE didn’t take in an expected $600 million in the first half of the year and won’t take in another $400 million per quarter in the second half if the plane remains grounded.
“$400 million per quarter is what is likely to happen if we do not see a return to service,” GE Chief Executive Larry Culp said. GE’s revised financial forecast for the full year, which calls for cash flow between $1 billion and negative $1 billion, reflects the MAX delays.
GE has slowed production this year of the engine model used in the MAX. The project is a major driver of growth for the company’s aviation unit, which accounted for $3 billion of GE’s roughly $5 billion in industrial profits in the first half of the year. The LEAP, which is also used on Airbus SE jets, has attracted more than 17,000 orders. GE also makes avionics and other parts for the MAX.
“GE is heavily tied to Boeing’s narrowbody fortunes,” said John Inch, an analyst at Gordon Haskett, an investment research firm. He said once the single-aisle MAX is approved to fly again, Boeing may need to discount the price of the plane and that could mean less money for GE as well.
The aviation unit, which is now GE’s largest by revenue, has propped up the conglomerate’s results in recent years as GE has struggled with losses in its core power division and finance arm. Those troubles have forced GE to slash its dividend and pursue plans to sell off business units.