Breakingviews: GE chief’s efforts pay back twice over

General Electric operates with an existential problem: it gives big companies things they very much need, like airplane engines and power turbines, but has little control over when or how much they need them. The dynamic was a curse when planes were grounded during the pandemic, but now the winds of demand are blowing in the conglomerate’s favor. What’s good for shareholders in this case is even better for well-upholstered CEO Larry Culp.

Jet engines, which made up about half of GE’s $16.7 billion in second-quarter revenue, are soaring again. Airlines’ quest to save money means they’re trying to make their flying machines last longer, which benefits their makers, too. Customer orders for fixing and maintaining GE engines rose 30% in the second quarter, year-on-year. Spare parts-related revenue increased by more than 40%.

The results were less electrifying in GE’s power business, due to be spun out next year as GE Vernova. But there, too, demand is growing. Generous subsidies from the White House for green energy help. More traditional power kit, such as gas turbines, are more sluggish, but at least profitable. And while revenue shrank, orders for future sales grew. In total, Culp says GE might generate $4.6 billion in free cash this year, 15% more than analysts were expecting, according to Refinitiv.

The recovered GE is more efficient, because even when demand for its products dimmed, Culp’s fanatical adherence to “lean” manufacturing principles didn’t. There is some clear evidence for investors to appreciate. GE’s French wind-power teams now make some components in half the time; better parts management helped GE shift 40% more T700 engines in the second quarter than the first. The real point: less cash gets tied up in working capital.

A job well done is rewarding – GE shares have more than doubled over the past year. Not as rewarding, though, as Culp’s extravagant bonus, a sign-on gift from reluctant shareholders pegged to GE’s share price, and adjusted in 2020 in his favor. To receive $232 million of stock, Culp had to get GE’s 30-day average share price, blended with the price of spun-off affiliate GE HealthCare Technologies, above a certain level. He hit the jackpot as of July, provided he sticks around a while longer. It’s a recovery that’s paying off twice over.