GE Aviation Faces External Challenges

GE Aviation is the star performer within General Electric, but it is hobbled by its connection to a troubled company.

The company is unable to make acquisitions being made by other major aircraft suppliers. United Technologies' recently completed purchase of Rockwell Collins made it the world's largest aerospace equipment supplier. Safran's acquisition of Zodiac made it the third largest supplier and it is seeking to become the largest in 15 years. The acquisitions will continue.

This supplier base consolidation is the result of pressure from prime contractors. Aerospace prime contractors have built up their strength in the market. Airbus' work with Bombardier and Boeing's joint venture with Embraer are resulting in a more consolidated market with a duopoly with greater power in dictating pricing and forcing reductions.

United Technologies and Safran have responded by getting larger. Their goals are to be able to build more complete systems and continue to cut prices to make it difficult for the prime contractors to dis­place them on programs.

United Technologies and Safran are using scale as a way to continually cut costs. They are also seek­ing to build larger, more complete systems. This is exactly the vision that General Electric had years ago when it tried to purchase Honeywell. That acquisition was blocked by antitrust regulators.

At this point, GE Aviation does not have the option of making acquisitions. There is simply no money available for purchases. It is also uncertain whether General Electric's overall problems could hurt GE Aviation's ability to invest in new programs and do research and development.

For now GE Aviation is showing extremely good results.