Shares in GE slump 5% as Covid-19 pandemic ravages aviation industry – hits second-quarter earnings hard

Reporting cash outflow of US$2.1 billion from its industrial operations – well below an anticipated US$3.5 billion – US$4.5 billion, shares in the Boston, U.S.-based conglomerate fell 5%.

The aviation unit of the company, which is usually the most profitable, was hardest hit in terms of sales and orders. This unit, which makes engines for both Boeing and Airbus had already been severely impacted by the grounding of the Boeing 737 MAX, while Boeing’s announcement that it is further reducing production numbers of the troubled jet have compounded GE’s problems.

However, GE remains optimistic, noting that global flight numbers have slowly begun to increase. “We’ve started to see some early signs of improvement in June and July,” commented Chief Executive Lawrence Culp. “Nonetheless, we remain cautious going into the second half, given the uncertainty associated with the pandemic.”

Having taken over the role of CEO in September 2018, Culp has been charged with improving free cash flow and improving debt, the former expected to be better in the second half of the year, turning positive in 2021. In an attempt to cut costs, GE has already trimmed its workforce by 11% and plans to further reduce it by an estimated 25%. However, the first paring back of the workforce saw the company’s decremental margin drop a mere 3% from 62% to 59% in the first quarter of the year.

According to Reuters news agency, Analysts at Gordon Haskett Research Advisors, however, dubbed the progress as “weak”, warning the lagging impact of the pandemic could further hurt the performance of the services part of GE’s aviation business in the third quarter.

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