Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We've got some aerospace
Speaker 1: royalty here in the room, as you say, Larry Culp,
Speaker 1: the CEO and chair of General Electric, the world's biggest
Speaker 1: jet engine manufacturer. John this is a company that is
Speaker 1: newly independent. It's a standalone business. The first time we've
Speaker 1: see numbers being reported on that basis, and the numbers
Speaker 1: we've seen being reported look good and being taken well
Speaker 1: by the market. That stock I think is up circa
Speaker 1: three percent this morning. It looks like a beat and
Speaker 1: a rays from Larry Culp. Good morning, good afternoons. I
Speaker 1: probably should say nice to have you with us, Thanks
Speaker 1: for joining us.
Speaker 2: I good to be with you.
Speaker 1: Talk me through, took me through the strength, taught me
Speaker 1: through where it has come from. Where is the strength
Speaker 1: of this beaten rays within the business?
Speaker 2: Well, guy, it's really rooted in the demand that we
Speaker 2: see both from the airlines and from the airframers for
Speaker 2: more of what we do. Seventy percent of Gerospace on
Speaker 2: a standalone basis comes in the aftermarket, supporting the airlines
Speaker 2: with parts, with services of all types to keep today's
Speaker 2: fleets in the air and given the activity that they're
Speaker 2: seeing with the flying public. It's all we can do
Speaker 2: to keep up with what they'd like to see from us.
Speaker 2: So the sixty plus percent improvement in earnings, the nearly
Speaker 2: twenty percent improvement in free cash we announced today is
Speaker 2: really a function of the strength that we're seeing in
Speaker 2: our commercial engines and services business in the aftermarket.
Speaker 1: Is that sustainable? Does that carry on throughout the rest
Speaker 1: of this year into twenty twenty five? Is that something
Speaker 1: that is here now gone tomorrow? Because we're starting to
Speaker 1: see some warnings coming through, particularly from the narrow body
Speaker 1: OPERATESUS in the United States, and as of the beginning
Speaker 1: of this week with run here.
Speaker 2: In Europe, well, we've certainly seen those as well. It
Speaker 2: seems like that commentary is really geared more toward pricing
Speaker 2: than anything else. But if you look at our order
Speaker 2: book in the second quarter alone, nearly forty percent year
Speaker 2: every year we see our utilization of the fleets, both
Speaker 2: the mature fleet which we power with the CFM fifty
Speaker 2: six have been steady. An engine that folks might thought
Speaker 2: might begin to fade our newer generation technology, the leap
Speaker 2: engine on both the seventy three seven Max and the
Speaker 2: Neo at Airbus that's probably four points in terms of share,
Speaker 2: so our utilization could not be higher even just looking
Speaker 2: at the third quarter here, we have probably ninety percent
Speaker 2: of our third quarter projection in backlog today with respect
Speaker 2: to parts. So in terms of the demand signals we're
Speaker 2: seeing from our customers, things are strong.
Speaker 1: The hours being flown are going to remain consistent, you think.
Speaker 2: We believe so, and going forward they're going to increase.
Speaker 1: That's the kind of the oldest story, that's the existing
Speaker 1: fleet that's already out there. As you say, the maintenance,
Speaker 1: the maintenance story is very strong. The margin off that
Speaker 1: is very very strong. The story sting of the Farmberas
Speaker 1: Show and all the air shows recently and throughout this
Speaker 1: industry has been what has been happening with the supply chain.
Speaker 1: Ab Bus Learning gets guidance for the year talking about
Speaker 1: engines within that guidance. Is the supply chain story getting
Speaker 1: better or is it getting worse?
Speaker 2: Guy, I'm strongly of the view it's getting better. It's
Speaker 2: really all about the rate of improvement. And what we
Speaker 2: shared earlier today with investors is that we didn't have
Speaker 2: the output that we had anticipated in the second quarter
Speaker 2: with our newest generation engine in particular with our Leap engine.
Speaker 2: But we're going in using our flight deck, our lean
Speaker 2: operating model to help our suppliers help us jointly problem
Speaker 2: solving YEP, really understanding constraints at the point of impact,
Speaker 2: and we saw tremendous results from that in the second quarter.
Speaker 2: Didn't translate into as many deliveries, perhaps as our frame
Speaker 2: or customers would have liked, but we saw two thirds
Speaker 2: of the suppliers that we worked with improve their output
Speaker 2: to us by nearly twofold. It's discouraging.
Speaker 1: Just kind of told me through what's happening. So originally
Speaker 1: the guidance was for twenty five percent improvement for that engine.
Speaker 1: Then you went, I think it was an eight. You
Speaker 1: are kind of ten to fifteen. Now you're a kind
Speaker 1: of flat to five exactly. That feels like it's not
Speaker 1: getting better. You're telling me that it is below the
Speaker 1: surface is getting better.
Speaker 2: It's not getting better at the rate that we had anticipated,
Speaker 2: but it's getting better. If you look at the sequential
Speaker 2: trends and that from an operating perspective, that's all that
Speaker 2: really matters. Week in week out, quarter in quarter out.
Speaker 2: Are we seeing more and are we seeing more predictably. Okay,
Speaker 2: we're getting better in that regard. I'm encouraged by what
Speaker 2: I've seen here just in the first three weeks of July.
Speaker 2: A lot of work not only in the second half
Speaker 2: still in front of us, but as we think about
Speaker 2: twenty five and twenty six, but working in that way,
Speaker 2: yielding those sorts of results will I think put us
Speaker 2: all on the ramp.
Speaker 1: So the benefit comes next year. That's when we start
Speaker 1: to see the big benefit coming through.
Speaker 2: I think some of the actions that we took in
Speaker 2: the second quarter will help us in the third quarter
Speaker 2: and in the fourth quarter of this year.
Speaker 1: Why is it taking this is a question I put
Speaker 1: the gill four you. Why is it taking so long
Speaker 1: to resolve this issue within the supply chain?
Speaker 2: Well, I saw a gillom yesterday. We talk about this
Speaker 2: every time we're together. I think it's important for everyone
Speaker 2: to remember, guy, that we turned the industry down to
Speaker 2: almost zero during the pandemic, and what we're trying to
Speaker 2: do now is turn it all the way back on.
Speaker 2: And that's hard. We lost not only people during the pandemic,
Speaker 2: we lost a tremendous amount of experience technical people throughout
Speaker 2: the supply chain. In GIMP's facilities, at Boeing, at g
Speaker 2: Eero space and throughout the supply chain. We're building all
Speaker 2: of that capability back and because those roles are filled
Speaker 2: now not by a fifty eight year old, but perhaps
Speaker 2: by a twenty eight year old, there's a lot we
Speaker 2: have to do in terms of not only adding capacity
Speaker 2: but capability to meet the ramp that we all marked upon.
Speaker 1: He told me this one. He thinks we've already got
Speaker 1: another couple of years Togo though, until we resolved some
Speaker 1: of these issues. Does that timeline feel kind of about
Speaker 1: right to you as well?
Speaker 2: We're trying to make progress every week, but I think
Speaker 2: this is a multi year effort that the industry faces.
Speaker 1: In terms of what we bring up gilforty. How is
Speaker 1: your relationship changing with their bus? You traditionally be really
Speaker 1: tight with Boeing, tom Endos, I know, well, you know, well,
Speaker 1: now is now on your board? Does that does that
Speaker 1: signal to change in relationship with that bus? Well?
Speaker 2: I think we have served both of the major air
Speaker 2: framers well over time. Right we don't have over two
Speaker 2: thirds of the departures in the narrow body space serving
Speaker 2: Boeing alone. We're very excited about the news we put
Speaker 2: out last week with the A three twenty one xl
Speaker 2: R now approved but only proved with the GDE Leap
Speaker 2: one A right our engine. So there's a lot that
Speaker 2: we're doing with Airbus, not only in terms of the
Speaker 2: ramp but next generation technology as well, and we're trying
Speaker 2: to be as strong and as good a partner to
Speaker 2: Gillom and Christian and their teams as we possibly can be.
Speaker 2: We want to do the same thing with the folks
Speaker 2: at Boeing. Of course, yep, we can do that as
Speaker 2: long as we invest into technology, use flight deck to
Speaker 2: deliver safety, quality, delivery and cost to their requirements and
Speaker 2: jointly serve the airlines.
Speaker 1: Defense and just spend a moment if we can as
Speaker 1: we conclete things. Talking about defense, do you think spend
Speaker 1: spending is going up? Do you think that Trump presidency
Speaker 1: would mean great to defense spending? Do you see defense
Speaker 1: spending going up in Europe in a Trump presidency because
Speaker 1: of the requirements in terms of that's GDP not that's
Speaker 1: GDP spending to GDP. How do you see that story
Speaker 1: progressing and what does it mean ultimately for Ge?
Speaker 2: Well, I think on both sides of the Atlantic. Given
Speaker 2: the authorities that I speak with, spending will be paced
Speaker 2: by the threat, and the threat is only increasing. Therefore,
Speaker 2: be it in combat aircraft, be it in rotary craft.
Speaker 2: The two areas that we serve most directly, we think
Speaker 2: we will see looking out over the next five to
Speaker 2: ten years, have sustained growth.
Speaker 1: Just one final quick question before I'm full of throw
Speaker 1: banks at this GDA. Was it an easy decision to
Speaker 1: continue your contract? Can I one hundred percent rule you
Speaker 1: out as a Boeing job?
Speaker 2: How about one hundred and one percent?
Speaker 1: One hundred and one percent, There you go, one hundred
Speaker 1: and one percent. I know the guys in the studio
Speaker 1: were talking about this a little bit earlier on. So
Speaker 1: one hundred and one percent, there you go, John, Lisa,
Speaker 1: one hundred and one percent. Larry Kulp is staying at
Speaker 1: GE and a fantastic set of numbers delivered earlier on today.
Speaker 1: Looks like the market likes what it hears.