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GE Aviation maintains output amid Max crisis and warns of Q2 hit

The grounding of the Boeing 737 Max has not yet significantly impacted the profits of engine maker GE Aviation, though General Electric’s chief executive warns of a potential financial impact in the second quarter.

Meanwhile, GE Aviation’s CFM International joint venture has continued to produce 737 Max Leap-1B engines at previous rates despite Boeing slowing its own production.

Speaking during the company’s first quarter earnings call on 30 April, GE chief executive Lawrence Culp says the grounding could affect GE Aviation equally to its CFM partner Safran Aircraft Engines.

Just days ago, Safran’s top brass warned the grounding could cost it €200 million ($224 million) in the second quarter.

“We probably have something in that same range as a headwind with respect… to our own side of the [CFM joint venture] in the second quarter,” GE’s Culp says.

The grounding “presents a new risk” he adds. “We have strong partnership with Boeing. We are confident in the 737 Max aircraft [and] we are working closely with Boeing.”

So far, GE Aviation’s production has hummed along unaffected even though in April Boeing cut 737 output by 19% to 42 aircraft monthly.

“We have not changed our engine production plan at this time, but the timing of cash flows may be impacted by collection of receivables from Boeing, depending on when aircraft deliveries resume,” says GE chief financial officer Jamie Miller.

Evendale, Ohio-based GE Aviation shipped 424 Leap engines in the first quarter, more than twice as many as in the same period of 2018. It shipped 751 commercial aviation engines of all models in the first quarter, up 15% from 651 shipments in the same period one year earlier, GE reports.

The engine maker expects to ship at least 1,800 Leap engines in 2019, it says.

GE Aviation’s first quarter profit inched up 4% year-over-year to $1.7 billion, while revenue jumped 13% to $8.0 billion. Revenue from sales of equipment such as engines increased 24% in the quarter to $3.1 billion, while aircraft services revenue increased 4% to $4.8 billion.

The aviation unit’s first quarter profit margin slipped 1.6 percentage points year-over-year to 20.9%, GE reports. The decline primarily reflects fewer deliveries of higher-profit CFM56 engines and more deliveries of new-generation Leap engines, says Miller.

GE Aviation has been behind on Leap deliveries for months amid supply chain pressures. Earlier this year, executives said deliveries were four weeks behind schedule.

But GE Aviation has made up lost ground. It is now on schedule with Airbus and two weeks behind with Boeing, says Culp.

“We expect to be back on schedule in the second quarter,” he adds.

Story updated on 30 April to include GE Aviation's Leap shipment goal of 1,800 engines in 2019.

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