Saving General Electric

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Company Profile

Founded in 1878 by Thomas A Edison. Incorporated in 1892 as a result of merger between Thomson-Houston Company and Edison General Electric Company. Headquarter in Boston,MA. 

Early products includes light bulbs, home appliances, electric locomotive and x-ray machines. The company invented microwave and radar systems and supplied equipments which were used in World War II. J-47 jet engine was introduced in 1949 and was widely used by United States military. 

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Business segments include: Aviation, Healthcare, Renewable Energy, Power and GE Capital. 

GE Transportation was merged with Wabtec in May-2018. Spin-off completed in Feb-2019. 

GE Lighting was sold to private equity AIP in Nov-2018. 

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Leadership - CEO

1981 - Jack Welch, grew GE from $25B to $130B. 

2001 - Welch picked Jeff Immelt as CEO

2017 - Jeff Immelt resigned as CEO in June.

2017 - John Flannery who turnaround GE Healthcare became CEO.

2018 - H. Lawrence Culp replaced Flannery in October.

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Not Business as Usual

Jeff Immelt tenure as General Electric was one filled with extreme crisis. Shortly after becoming CEO, Sep-11 occured, testing the firm's resolve to overcome extreme events. This was followed in 2008/9 by the global financial crisis where GE had to borrow $3B from Berkshire Hathaway to stabilise operations. In retrospect, these events were only warming the company's towards the next existential crisis. 

 

GE Capital was a cash-cow that funded many of General Electric businesses prior to the financial crisis. In 2015, GE Capital recorded a loss of $8B as the firm trim assets to focus on manufacturing, in particular GE Power. 

In 2018, the company had to impair $22B for Alstom placing her balance sheet under great stress. Other assets divested under Immelt includes NBCUniversal, GE Water, GE Plastics and GE Appliances.

 

Immelt abruptly resigned as CEO in 2017. Replaced by Flannery who lasted a little more than a year before being replaced by Culp. 

The company had been selling assets like GE Transportation and Lighting to reduce debt and strengthen her balance sheet. 

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2018

Power business fell into losses while Renewable Energy and Oil & Gas business units underperformed. Meanwhile debt reduction effort is moving in the right direction  However further improvement is still need to reduce gearing. 

In June, GE an original member since 1896 was removed from DJIA.

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2019

1Q-2019 eventually showed sign of turning around, led by Aviation and Healthcare. However, Boeing 737 Max which uses GE engines is clouding GE Aviation business with two recent crashes and risk of production stop for the long term.

2Q-2019 record a small loss of $61M in part due to $744M impairment from Renewable Energy group. Power is stabilising while GE Capital is still work in progress. Aviation reported a slightly softer set of numbers.

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OPINION

General Electric key issue was failure of leadership.

Mistake in picking a successor happens. Key problems were the Board's structure (Immelt was Chairman & CEO) and complacency in allowing poor management decision to fester for 16 years - poor acquisitions especially Alstom (buying without understanding the depth of Alstom problem) and in expanding GE Capital liabilities towards the subprime crisis. 

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Going forward, the company appear to gain semblance of stability while challenges remained in Power and GE Capital. Aviation is also facing headwind from Boeing 737 Max issue. 

Despite the crisis, General Electric possesses both leadership depth and breadth. Culp and the deep talents within the company are now called upon to save General Electric. 

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