Specialist
Former VP at GE Aviation Systems LLC (General Electric Co)
Agenda
- Outlook for GE Aviation (NYSE: GE) as a standalone
- Supply chain constraints – diversification away from Russian titanium, powder billet sourcing and navigating tariffs
- Labour and material availability
- Ability to meet production targets and potential supply chain challenges
- 2023 outlook
Questions
1.
How would you describe the current health of GE Aviation’s supply chain? What are the key issues within the company’s supply chain that our clients should be cognisant of?
2.
You highlighted a number of constraints. What is going to constrain GE Aviation’s ability to stay on rate? Where along the supply chain are suppliers most meaningfully constrained either from a labour or material perspective?
3.
Are there any elongated lead times for materials that you want to highlight? Thinking through the constraints you mentioned, are cycle times meaningfully elevated as a result?
4.
Could you give us a sense for lead times for key materials and systems today vs pre-pandemic vs other ramps that you’ve been associated with?
5.
You mentioned that GE Aviation has moved but some of its other partners are still exposed. Where has capacity sprung up in replacement to replace that titanium? How would you assess availability today?
6.
Are the lower-tier suppliers having trouble sourcing metal outside of Russia mainly? How should we think about where the risk lies in metal sourcing going forwards?
7.
I often hear about the issues of finding skilled labour, particularly at the forging and casting houses. How would you assess the health of those players today, starting with Howmet, CPP and PCC? How would you assess their health today compared to pre-pandemic vs previous production ramps?
8.
How should we be assessing the health of the players we mentioned in real-time? What would you look for as an outsider today to get a sense for the impact delays for those players would have on GE Aviation’s rate?
9.
Are complex products, specifically things such as Leap blades and vanes, where we’re likely going to see struggles? Would you agree with that sentiment that the more complex pieces are going to be the issues? What other pieces of the engine are more likely to see delays?
10.
What is a “healthy” billet buffer? Is there a good figure for that?
11.
What are players such as GE Aviation doing to mitigate issues around supply and labour? For example, I’ve heard about the company increasing the amount of tooling it gives to forging and casting suppliers to have three tools for every core, and it noted that it’s also moving some labour into supplier facilities. Can you talk about those efforts and anything else that it is doing to mitigate some of these concerns?
12.
You mentioned strategic buffers. Can you elaborate on that point? Where is it difficult to find duplicate sources?
13.
As you evaluate GE Aviation’s recent efforts to mitigate some of the supply chain concerns, are they enough, or is there more that the company could and should be doing to mitigate some of these concerns?
14.
When it comes to supply chain and sourcing strategies at GE Aviation and supplier players pre-pandemic vs today, what has structurally changed about the way that supply chains are managed or the health of supply chains? What has structurally changed forever?
15.
In previous Interviews, I’ve also heard that companies such as GE Aviation, Pratt & Whitney and Rolls-Royce are getting the priority from some suppliers such as Howmet and PCC. Who is getting deprioritised? What companies are likely to see longer lead times as forging and casting players look to meet the needs of their largest customers?
16.
Is there enough resilience to not only support Leap targets but also lower-volume product lines? How does GE Aviation prioritise internally?
17.
Going back to the labour point, I’ve read that a lot of engineering talent has been shed and forced to retire in the broader aerospace industry and then rehired to meet the rising demand. How should we think about the implications of those actions? Are we starting to see process yield decline meaningfully as a result?
18.
Are there any good figures or rules of thumb for calculating if a company is at rate, such as how many labourers you need per plant to hit a specific run rate? Is there anything you could share for outsiders to assess the health of GE Aviation and its suppliers?
19.
The goal is to increase Leap volumes by 50% in 2023, in line with the rate of improvement you just mentioned. What else is it going to take to achieve that figure? Does the company need more labour? You said it has the equipment, but does the 50% figure seem achievable to you? Why or why not?
20.
How does GE Aviation internally prioritise when it’s thinking about spares vs meeting new engine demand? How does the company balance those two? Can you talk us through the trade-offs if we are to see Leap continue at this pace? Is that coming at the expense of spares?
21.
GE Aviation CEO Larry Culp noted that as the company gets back to 2019 levels, it expects spares to be more in line with the departure growth rate but is aware that could be a conservative estimate. What are your views? Does that seem on par?
22.
Will GE Aviation be able to support the air framer’s delivery targets? I believe it’s 400 for the Max this year, 70 for the 787 and 720 deliveries in 2023 for Airbus. Do you think that GE can support this ramp? Why or why not?
23.
How does the ramp compare to other ramps that you’ve seen in your career, post-GFC [Global Financial Crisis] or other production ramps that you’ve observed during your time with GE Aviation? What is similar or different this time around? For example, I often hear that in past cycles we didn’t have the equipment, today we have the equipment but not the labour.
24.
If you had to point to one area of the supply chain, what is going to delay deliveries for large aerospace players such as GE Aviation, Airbus and Boeing? Is there anywhere around the supply chain that you think our clients should be more focused?
25.
While USM [used serviceable materials] seem to be constrained by limited retirements, how should we think about the outlook for PMA [Parts Manufacturer Approval]?
26.
How should we balance the impact of potentially late deliveries with the impact on the aftermarket side? Is GE Aviation almost inclined to let delivery slip to let more work come to the aftermarket? How does the company think about that internally, given the profits generated on the aftermarket side?
27.
GE Aviation put out its internal shop forecast and as we have the third iteration of the 737 and generally newer aircraft, are these new aircraft following the same path as previous iterations, in terms of parts and services needs? Or do these newer aircraft follow a meaningfully different path in terms of average spend and parts and services per year near the middle of the life cycle?
28.
Do you have any idea on lead times to get a shop visit today vs what they looked like pre-pandemic?
29.
Is two months a good estimate for the time to complete a shop visit at GE Aviation?
30.
GE Aviation is talking about doing shop visits 30% faster. Does that seem feasible to you? Why or why not?
31.
When you think about the supply chain of GE Aviation today, is there anything else that you feel is important for us to discuss, with an investor audience in mind?
32.
Could you talk about why GE Aviation has chosen the route of not allocating cash to raw materials? Why has the company chosen that strategy? What are the puts and takes and the outlook for a shift in that strategy?
33.
Can GE Aviation be nimble with its materials sourcing strategy? Can the company choose to go out and buy it itself or is that a rigid strategy that it adheres to?
34.
When you think about the production ramp, where would you suggest our clients focus their time? If trying to estimate if these rates are achievable, what would you be doing as an outsider to get ahead of that?
35.
Can you give us healthy figures for the metrics you mentioned – billet buffer, lead times and first pass yields? What would you need to hear or see to assess that everything is on rate vs off?
36.
Is there anything else that you want to highlight that you think is underappreciated about GE Aviation’s supply chain and ability to hit rate?
37.
As somebody who’s had their eyes on the supply chain for the last number of years, who would you point to as the winners and losers in the aerospace industry today? Are there pockets where there is share being gained, or do you have any insight into the winners and losers of the last two years, given the pandemic?
38.
GE Aviation has a goal for 20% margins. What does the path back to 20% margins look like? What needs to go right for the company? What are you watching that could impede that target?
39.
Is there anything you want to leave us with, as far as thinking about GE Aviation as a standalone company as Aviation and Renewables separate in 2024? What are the key risks our clients should be evaluating? How might the strategy or capital allocation change?
40.
If you were in front of GE Aviation’s CEO Larry Culp today, what sort of questions would you be asking him about the supply chain and the company’s ability to stay on rate or anything else in the vein of discussion we’ve had today?
