Company hopes aircraft build rates will remain low to eliminate overcapacity

Airliner production rates are unlikely to recover before late 2006 or even 2007, the heads of US giant General Electric believe.

Speaking last week in New York on the state of the airline industry, GE chairman and chief executive Jeff Immelt, GE Aircraft Engines (GEAE) chief executive David Calhoun, and GE Aviation Services and lessor GECAS president Henry Hubschman agreed that a rebound in aircraft deliveries was not expected before the end of 2006.

"We are hoping that the production of new aircraft continues at a slow pace here for a couple of years," says Calhoun. "We're not anticipating a recovery until at least the latter half of '06 - maybe '07 - and we think that's a good thing for the industry." Deliveries need to stay low to allow the industry to get rid of lingering overcapacity, he adds.

Hubschman, meanwhile, says that GECAS expects a $350 million write-down to account for a drop in values on its aircraft portfolio, although he still expects to meet a target of $450 million net income for the division in 2003.

"We think we can still get there [to the $450 million target] while taking all the appropriate impairments and write-downs and losses on aircraft that we sell as we trim down the fleet and make it more modern," said Hubschman.

GECAS has about 1,200 aircraft in its portfolio, but only five are parked. "We've taken our share of hits, but we have still done pretty well overall," says Hubschman. "We think we can still hit the numbers, even taking into account all the write-downs."

Immelt, meanwhile, stresses that GE remains committed to the aerospace industry despite its notorious cyclical patterns. "It has always been our sense that this is a core GE industry and it has been our intention to come through [this cycle] in a better position than we went into it," he says.

He adds that predicted year-on-year 3-4% growth in passenger kilometres and continued growth in air cargo means that GE's aerospace businesses will provide the double-digit growth that is GE's blueprint.

"Indigenous use of this industry is pretty robust. It is a pretty resilient industry," says Immelt.

Source: Flight International