WEBVTT - GE Aerospace Chairman/CEO Henry Lawrence Culp Jr "Larry" Talks Aerospace Supply Chain Issues 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:07.120 --> 0:00:10.280 Let's get to a conversation with Larry Kulp, chairman and 0:00:10.400 --> 0:00:15.000 CEO of GE Aerospace. In an exclusive interview with Bloomberg, 0:00:15.200 --> 0:00:19.200 he passed through the issues lingering over the aviation industry. 0:00:19.680 --> 0:00:21.640 Here's Culp speaking with our own Husbland. 0:00:21.680 --> 0:00:24.479 I mean in Singapore, Larry, when he comes to the 0:00:24.480 --> 0:00:28.160 aerospace industry, it's been settled with supply chain disruption, supply 0:00:28.240 --> 0:00:31.600 chain issues and challenges. When will we see the end 0:00:31.640 --> 0:00:32.440 of those challenges? 0:00:33.240 --> 0:00:37.239 Well, in many respects, it's all about demand, and we 0:00:37.280 --> 0:00:40.600 look out both in terms of demand for new engines 0:00:40.680 --> 0:00:44.519 under wing on new airplanes and the support that we 0:00:44.560 --> 0:00:48.240 provide the airlines for their existing fleets continuing to be strong. 0:00:48.280 --> 0:00:50.600 Really for the rest of this decade. It's a good. 0:00:50.479 --> 0:00:53.760 Problem to have, and we'll need to increase our output. 0:00:53.840 --> 0:00:55.800 We'll need to work with our suppliers to increase their 0:00:55.800 --> 0:00:59.800 outputs to us. I think every year probably between now 0:00:59.840 --> 0:01:02.240 and twenty nine or thirty at a minimum, so it'll 0:01:02.280 --> 0:01:03.120 be with us for a while. 0:01:03.280 --> 0:01:04.720 But I think we're making a lot of progress. 0:01:04.959 --> 0:01:07.560 The thing is some had anticipated and ended the problem 0:01:07.640 --> 0:01:10.440 by twenty twenty seven, but By the sound of it, 0:01:10.440 --> 0:01:13.360 it's going to be longer than that. Perhaps we could 0:01:13.400 --> 0:01:16.800 see a lost decade for the aerospace industry. Would that 0:01:16.880 --> 0:01:17.760 be a fair assumption. 0:01:18.400 --> 0:01:20.400 I don't think we're going to lose a decade by 0:01:20.440 --> 0:01:24.240 any stretch. Again, I think given how strong demand is 0:01:24.760 --> 0:01:28.600 and the progress we and others are suppliers, our airframeer 0:01:28.640 --> 0:01:33.559 customers are making will continue to drive output again because 0:01:33.560 --> 0:01:36.920 the demand is so strong. We'll talk about the supply chain, 0:01:37.040 --> 0:01:38.720 but I don't think this will be a lost decade. 0:01:38.720 --> 0:01:40.479 I think this will be a very important decade as 0:01:40.560 --> 0:01:46.840 the industry recovers from the pandemic, modernizes fleets, expands fleets 0:01:47.080 --> 0:01:49.120 with more fuel efficient aircraft. 0:01:49.320 --> 0:01:51.680 But realistically, what can be done. 0:01:51.880 --> 0:01:54.520 Well it really for us is all about making sure 0:01:54.600 --> 0:01:59.000 we're the best possible partner, the best possible collaborator with 0:01:59.120 --> 0:02:04.360 our suppliers. The vast majority of the input challenges that 0:02:04.400 --> 0:02:07.920 we have, the shortages that cause us to be late 0:02:08.440 --> 0:02:11.840 on deliveries really come from about fifteen different suppliers across 0:02:11.880 --> 0:02:15.079 our supply chain. We have five hundred and fifty engineers 0:02:15.600 --> 0:02:19.760 going in to work with those suppliers. Identify bottlenecks, identify 0:02:19.800 --> 0:02:23.480 constraints and really solving those problems so that we can 0:02:23.560 --> 0:02:27.560 drive better output from their operations, inputs into hours and 0:02:27.560 --> 0:02:29.440 in turn to the airlines and the airframers. 0:02:29.680 --> 0:02:33.480 Let's talk specifically about the latest supply chain disruptions and 0:02:33.560 --> 0:02:35.760 shortage and that has to do with the costings of 0:02:35.840 --> 0:02:39.040 high pressure turbine blades. What's the story there? When can 0:02:39.120 --> 0:02:40.520 that issue be resolved? 0:02:40.639 --> 0:02:42.679 Well, I think there are a host of issues. Again, 0:02:42.720 --> 0:02:45.800 when you look across the supply chain that we're managing, 0:02:45.840 --> 0:02:49.240 We've got about fifteen different suppliers across a number of 0:02:49.280 --> 0:02:53.560 different commodities, which are really where we're being paced. So 0:02:53.600 --> 0:02:56.320 I think in every instance, I really like the progress 0:02:56.360 --> 0:03:01.160 that I'm seeing teams collaborating on the shop floor identifying 0:03:01.240 --> 0:03:03.760 the issues that are really the problem. It may be 0:03:03.800 --> 0:03:06.959 a process yield in some instances, it may be something 0:03:07.000 --> 0:03:10.080 as simple as staffing, perhaps a second shift, and others. 0:03:10.600 --> 0:03:13.959 But by working those problems together, we're driving better output. 0:03:14.000 --> 0:03:16.440 We had a small handful of suppliers just here in 0:03:16.480 --> 0:03:20.239 the most recent quarter where we increased our output sequentially 0:03:20.560 --> 0:03:23.720 by eighteen percent, not year over year, but from the 0:03:23.760 --> 0:03:26.440 second quarter to the third quarter. It's that type of 0:03:26.480 --> 0:03:29.320 work the cumulative effect of that type of work, which 0:03:29.320 --> 0:03:29.920 will help us. 0:03:30.080 --> 0:03:33.080 So when it comes to the costings, that issue could 0:03:33.080 --> 0:03:37.640 be resolved in the next give me a timeframe. 0:03:38.120 --> 0:03:42.200 I don't want to talk about specific commodities with specific 0:03:42.240 --> 0:03:47.080 timeframes again, because the demand curve steps up every year 0:03:47.160 --> 0:03:49.920 for the rest of this decade. So even if we 0:03:49.920 --> 0:03:53.480 were in a position where we had solved a particular shortage, 0:03:53.800 --> 0:03:56.320 there's going to be more demand, thus more output required 0:03:56.360 --> 0:03:58.600 next year. So we'll need to continue to drive those 0:03:58.600 --> 0:04:02.720 capacity expansions, those process improvements for quite some time. But 0:04:03.200 --> 0:04:05.720 I think we're fortunate to have that sort of outlook 0:04:05.720 --> 0:04:06.280 in our business. 0:04:06.800 --> 0:04:10.080 The aerospace industry is also seeing of the challenges. We're 0:04:10.080 --> 0:04:15.040 seeing fulty pots in planes still in s is. How 0:04:15.120 --> 0:04:16.520 concerning is that for you? 0:04:17.040 --> 0:04:19.120 Well, it's a high priority for us because some of 0:04:19.160 --> 0:04:22.240 that activity has actually involved engines, and just a couple 0:04:22.279 --> 0:04:26.640 of weeks ago, our Supply Chain Integrity Coalition issued a 0:04:26.720 --> 0:04:30.640 report had a series of recommendations that we think will 0:04:30.680 --> 0:04:34.239 improve the safety and and the security of the supply chain. 0:04:34.880 --> 0:04:37.080 Not many people appreciate that what we do it's not 0:04:37.120 --> 0:04:41.000 only manufacture engines, but we support those engines for twenty 0:04:41.040 --> 0:04:45.280 sometimes thirty years over their entire life cycle. So the services, 0:04:45.640 --> 0:04:48.400 the parts, the repairs that we provide in the aftermarket 0:04:48.720 --> 0:04:51.400 are a critical part of what we do for the airlines, 0:04:51.800 --> 0:04:54.360 and we all need to make sure that there are 0:04:54.400 --> 0:04:57.200 no counterfeit parts in that supply chain. And that's a 0:04:57.200 --> 0:05:00.160 good bit of what the coalition the Coalitions work was 0:05:00.160 --> 0:05:00.599 aimed to do. 0:05:01.200 --> 0:05:04.640 Is there some sperhaps that it is a sign that 0:05:04.680 --> 0:05:10.320 we've reached the limit of innovation on conventional aircraft for instance. 0:05:10.360 --> 0:05:12.520 No, not at all. 0:05:12.680 --> 0:05:15.239 I think that if you look at what we're doing, 0:05:15.480 --> 0:05:19.279 just say, in the narrow body segment with our leap engine, 0:05:19.320 --> 0:05:23.480 we're providing a generational step function improvement in fuel efficiency. 0:05:23.720 --> 0:05:26.400 It's part of the reason that demand is so strong, 0:05:26.400 --> 0:05:28.920 because airlines not only want to expand they want to 0:05:28.960 --> 0:05:32.760 modernize because of that fuel efficiency, which also translates into 0:05:32.760 --> 0:05:36.720 real sustainability gains. We have been very public over the 0:05:36.800 --> 0:05:41.159 last three years about our next generation narrowbody engine, a 0:05:41.200 --> 0:05:45.080 program which we call RISE, which is really stands for 0:05:45.120 --> 0:05:48.760 Revolutionary Innovation and Sustainable Engines. So there will be new 0:05:48.800 --> 0:05:51.359 planes that come to market probably sometime in the middle 0:05:51.600 --> 0:05:54.120 or the latter part of the next decade. We want 0:05:54.160 --> 0:05:56.560 to make sure we're investing today in the technologies the 0:05:56.640 --> 0:05:59.880 innovations that are going to provide the next step function 0:06:00.040 --> 0:06:03.640 improvement in fuel efficiency and thus sustainability. 0:06:04.120 --> 0:06:08.160 Letter we know that ge powers the Triple seven X. 0:06:09.000 --> 0:06:12.360 Its delivery has yet again been delayed, extending the delay 0:06:12.440 --> 0:06:17.520 to about five years. Now. How confident are you that 0:06:17.880 --> 0:06:21.520 perhaps those planes will be delivered in twenty twenty six. 0:06:21.600 --> 0:06:23.080 What's the complication there? 0:06:23.440 --> 0:06:26.240 Well, I think there's a lot happening there. We'll let 0:06:26.560 --> 0:06:29.560 Kelly Ortberg and the team at Boeing talk about the 0:06:29.600 --> 0:06:32.599 schedule for the Triple seven X. I think their last 0:06:32.600 --> 0:06:36.320 comments talked about an entry into service in twenty twenty six. 0:06:36.880 --> 0:06:39.960 We're thrilled to be the only engine underwing with our 0:06:40.000 --> 0:06:45.160 new nine X engine. When I talk to customers, they 0:06:45.200 --> 0:06:48.400 tell me two things. They love that airplane and they 0:06:48.400 --> 0:06:51.120 wish they had it yesterday. I think the fact that 0:06:51.240 --> 0:06:54.719 customers are very key to see Boeing work through the 0:06:54.760 --> 0:06:58.159 development and the certification tasks that lie ahead of them 0:06:58.480 --> 0:07:00.520 is really good news for Boeing. Is good news for 0:07:00.600 --> 0:07:01.919 us because that's going to be a heck of an 0:07:01.960 --> 0:07:03.839 airplane once it enters into service. 0:07:03.880 --> 0:07:07.120 Allies like Kathy have expressed a disappointment. I mean, is 0:07:07.160 --> 0:07:09.240 there a sense? I mean, are you confident twenty twenty 0:07:09.279 --> 0:07:10.440 six is actually viable? 0:07:10.840 --> 0:07:12.840 That's the plan that we're working on with Boeing. We 0:07:12.880 --> 0:07:15.880 know that's the plan that they're working on with every 0:07:15.920 --> 0:07:18.920 ounce of energy and dedication that they can provide. 0:07:19.720 --> 0:07:22.600 You talked about your nine X engine. It's been problematic 0:07:22.640 --> 0:07:24.240 as well. There are a few challenges there that have 0:07:24.320 --> 0:07:27.960 been cracks. Can you talk us through what is happening, 0:07:28.000 --> 0:07:30.840 what the root cause is, and how are you trying 0:07:30.840 --> 0:07:31.400 to fix it. 0:07:31.760 --> 0:07:34.400 I think you may be referring to a piece of 0:07:34.440 --> 0:07:37.400 equipment that is attached to the nine X engine, which 0:07:37.480 --> 0:07:41.200 is a Boeing supplied part, not a GE Aerospace supplied part. 0:07:41.560 --> 0:07:45.440 So the engine has performed very well over the last 0:07:45.480 --> 0:07:48.520 several years. It was certified back in twenty twenty. There's 0:07:48.600 --> 0:07:50.640 plenty of work that we still need to do to 0:07:50.680 --> 0:07:53.680 be able to ramp side by side with Boeing, but 0:07:53.760 --> 0:07:56.960 in terms of the core integrity of the engine, we're 0:07:56.960 --> 0:07:57.800 in very good shape. 0:07:57.840 --> 0:08:00.480 So you're saying that it is not on GE to 0:08:00.680 --> 0:08:02.640 fix the problem, it is on Boeing to fix that. 0:08:02.960 --> 0:08:04.760 I think I think the crack that you're referring to 0:08:05.200 --> 0:08:09.640 is a function of a Boeing supplied component, not a 0:08:09.720 --> 0:08:11.440 ge engine. 0:08:12.200 --> 0:08:14.120 Do you see when do you see testing resuming for 0:08:14.320 --> 0:08:17.480 the Triple seven X. Is there is there a sense 0:08:17.760 --> 0:08:20.200 that you're getting in your conversations with. 0:08:20.240 --> 0:08:24.520 Boeing that's really for Boeing to speak too publicly in 0:08:24.600 --> 0:08:28.240 terms of the schedule for that the resumption of that testing. 0:08:28.440 --> 0:08:30.640 Larry, although you talked about how are you optimistic about 0:08:30.640 --> 0:08:33.640 the outlook for the aviation sector, talk to us about 0:08:33.760 --> 0:08:38.280 the kind of demand you anticipating and which region is 0:08:38.360 --> 0:08:39.439 driving that optimism. 0:08:40.000 --> 0:08:43.360 Well, I think it's really a global phenomena. As people 0:08:43.440 --> 0:08:47.160 have traveled more and they've been keen to travel all 0:08:47.200 --> 0:08:49.520 the more post of the pandemic. We're seeing the airlines 0:08:49.880 --> 0:08:53.040 work their assets, fly those planes like like never before. 0:08:53.400 --> 0:08:56.640 And at the same time, we're seeing airlines around the world, 0:08:56.640 --> 0:08:59.800 but particularly here in the Asia specific region and in 0:08:59.800 --> 0:09:03.480 the Middle East, looking to expand their fleets of both 0:09:03.559 --> 0:09:05.280 narrow bodies and wide bodies. 0:09:05.480 --> 0:09:06.480 That's all good. 0:09:06.400 --> 0:09:09.199 For the industry and why I say that this will 0:09:09.240 --> 0:09:13.840 really be a demand driven challenge, a challenge we happily accept. 0:09:14.200 --> 0:09:15.520 For the rest of this decade, Can. 0:09:15.440 --> 0:09:17.640 You put a number to it? Are you as optimistic 0:09:17.760 --> 0:09:19.280 now as you were at the start of the year 0:09:19.360 --> 0:09:19.920 for instance? 0:09:20.640 --> 0:09:25.240 Certainly more optimistic again because we see the flying public 0:09:25.440 --> 0:09:28.840 continuing to fly. Just the comments from the airline CEOs 0:09:28.880 --> 0:09:31.600 the last couple of weeks, in conjunction with their earnings calls, 0:09:31.720 --> 0:09:35.880 has reiterated that bolishness. And every customer that I talked 0:09:35.920 --> 0:09:39.760 to that has planes on order, be they Airbus or 0:09:39.800 --> 0:09:43.560 Boeing airplanes, are very keen to see those planes delivered 0:09:43.600 --> 0:09:45.120 and those planes added to their fleets. 0:09:45.320 --> 0:09:48.959 So what Asia versus Middle East versus Europe I mean 0:09:49.160 --> 0:09:50.040 in terms of growth? 0:09:50.480 --> 0:09:54.600 Well, certainly Asia pack and the Middle East I would say, 0:09:54.679 --> 0:09:57.520 is outgrowing what we're seeing in North America and in 0:09:57.559 --> 0:10:01.000 Europe in terms of new airplane delivery, and probably also 0:10:01.040 --> 0:10:03.720 at this point in terms of traffic increases. 0:10:03.960 --> 0:10:06.840 Are you concerned about growth because the IMF has just 0:10:06.880 --> 0:10:10.080 cut its growth projection for the year. We're seeing countries 0:10:10.200 --> 0:10:16.160 like China, for instance, undergoing a sluggish economy having great 0:10:16.200 --> 0:10:19.480 difficulty turning around its economy. Is that impacting kind of 0:10:19.480 --> 0:10:21.200 demand that you're anticipating. 0:10:21.800 --> 0:10:25.240 I think at this point we don't really see those 0:10:25.520 --> 0:10:31.200 economic concerns directly material impacting demand and our industry. Again, 0:10:31.240 --> 0:10:36.000 because the life cycles of these machines are so long, 0:10:36.760 --> 0:10:41.679 the order books really reach out into the next decade. Now, 0:10:41.720 --> 0:10:45.640 that could change, and we're not either oblivious or completely 0:10:45.640 --> 0:10:48.400 immune from some of the economic pressures that people are 0:10:48.440 --> 0:10:52.199 concerned about. But at this point, we really think that 0:10:52.240 --> 0:10:56.560 we have a strong undercurrent of demand on both the 0:10:56.600 --> 0:10:59.640 new make and on the aftermarket side, which should continue 0:10:59.720 --> 0:11:00.920 for the foreseeable future. 0:11:01.280 --> 0:11:03.360 When you speak to leaders in the business world, a 0:11:03.360 --> 0:11:05.760 lot of them say that one of the risks is 0:11:05.840 --> 0:11:09.400 actually the US election. How are you assessing that risk 0:11:09.440 --> 0:11:10.160 to your business? 0:11:10.760 --> 0:11:14.760 Well, we'll have an election here what a week from tuesday, 0:11:15.000 --> 0:11:17.679 and we'll get on the other side of that. Ge 0:11:17.679 --> 0:11:22.520 has worked with both Democratic and Republican administrations for over 0:11:22.559 --> 0:11:26.600 a century. So whatever the outcome, I know, having been 0:11:26.600 --> 0:11:30.560 born in Washington, DC, that we will will move forward 0:11:30.920 --> 0:11:34.040 as a company and we will work with whatever administration's 0:11:34.080 --> 0:11:38.120 in place, as we have over the last several gues. 0:11:38.440 --> 0:11:41.360 It doesn't matter who the president is. It doesn't matter 0:11:41.400 --> 0:11:45.160 if it's Trump and his perhaps is his plans to 0:11:45.200 --> 0:11:48.760 impose TARIS and China. That does not impact how you 0:11:48.880 --> 0:11:50.920 view your business, does not impact your strategy. 0:11:51.400 --> 0:11:56.440 Well, I think that we'll see how the winning candidate 0:11:56.960 --> 0:12:00.680 moves forward from a policy perspective. I'm highly optimistic that 0:12:00.760 --> 0:12:04.040 will work constructively with whoever wins the election. 0:12:04.320 --> 0:12:06.600 I'd like to touch in China, it has big ambitions 0:12:06.640 --> 0:12:09.160 Comac C nine one nine. So if we've seen orders 0:12:09.160 --> 0:12:12.840 of about three hundred coming from the big Chinese carriers, 0:12:13.960 --> 0:12:15.079 what do you make of that number? 0:12:15.920 --> 0:12:19.439 Well, it would suggest that the Chinese carriers like that airplane. 0:12:19.640 --> 0:12:21.680 We'd like to think one reason they like that airplane 0:12:21.720 --> 0:12:25.280 is because we have our leap one sea engine underwing 0:12:25.600 --> 0:12:29.240 sole source in that regard, and I think Comac and 0:12:29.280 --> 0:12:33.559 the Chinese are quite serious about their intentions with that airplane. 0:12:33.600 --> 0:12:36.080 And that demand that you just cited really is the 0:12:36.120 --> 0:12:39.400 beginning of the market acceptance of that aircraft. 0:12:39.640 --> 0:12:41.360 Do you think it can be a game changer? Do 0:12:41.400 --> 0:12:45.800 you think it will reshape the landscape in the aerospace business? 0:12:46.280 --> 0:12:49.040 Well, I think that we will see over time how 0:12:49.080 --> 0:12:53.360 successful Comac and the market acceptance of that airplane is. 0:12:53.400 --> 0:12:55.840 But it would be very foolish, I think, to bet 0:12:55.880 --> 0:12:58.880 against Comac and their customers. 0:12:58.960 --> 0:13:01.439 What are its biggest challenges well, I. 0:13:01.400 --> 0:13:05.160 Think anytime that you bring a new aircraft to market 0:13:05.600 --> 0:13:10.600 in a marketplace as complex as ours. Again, as we 0:13:10.600 --> 0:13:13.680 were talking earlier, there is not only the ramping of 0:13:13.760 --> 0:13:17.720 the supply chain to produce more of those airplanes every year, 0:13:18.200 --> 0:13:22.560 but the regional and ultimately the global support network that 0:13:23.160 --> 0:13:25.440 those airplanes will require that's. 0:13:25.240 --> 0:13:27.520 Going to be that's a serious undertaking. 0:13:27.840 --> 0:13:32.080 I think Komac understands that clearly and will do everything 0:13:32.120 --> 0:13:34.199 they can to master that challenge. 0:13:34.720 --> 0:13:37.040 Larry Colp, we thank you so much for your insights today.