Additive Manufacturing at GE in the Midst of a Turnaround (797 words)
GE has been a leader of additive manufacturing in aerospace. How will they keep innovating while facing pressure from investors?
Few industries have benefited more from additive manufacturing (AM) than aerospace. A leading company in this field is GE, which has developed a complex engine component and a new turboprop engine using AM. While these products prove GE’s ability to succeed in AM, the question remains how they will compete as barriers to entry decrease and the company faces cash constraints.
The aerospace industry is a good candidate for AM due to the need for mass-produced, complex, customized parts and the opportunity to save fuel costs (35% of airlines’ revenues) and emissions through weight reduction [1]. AM allows for weight reduction while maintaining the extremely high levels of precision required to avoid harmful accidents. For GE specifically, AM has differentiated them as a first mover in product development innovation. The facility where the LEAP fuel nozzle is produced was the first in the industry for mass production using AM [2].
As performance has declined recently (revenue decreased 1% in 2017), GE has divested peripheral businesses (oil; water; plans to spin off healthcare) to focus on its core, specifically aviation [3, 4, 5]. In the 2017 letter to shareholders, then-CEO John Flannery said AM could help “deliver outcomes for customers”, the number one 2018 goal – AM is clearly top of mind for GE [3].
To address AM in the short term, GE is focused on continuing the rollout of its LEAP engine with a 3D-printed fuel nozzle as well as developing a new Advanced Turboprop (ATP) engine. The LEAP fuel nozzle is printed in one piece rather than the twenty originally needed, making it 25% lighter and five times more durable than the typical nozzle [6]. After three years of production, GE recently completed its 30,000th fuel nozzle [7]. The company expects to continue meeting the planned ramp-up of LEAP production to reach 2,000 engines by 2020 [3].
The ATP engine for Textron Aviation’s Cessna Denali was announced in 2015 as the first clean-sheet design turboprop in 30 years [8]. The AM process reduces the number of components from 855 to 12, improves fuel usage by 15%, allows for 20% more range, and achieves 10% more power. AM has resulted in a 60% cost reduction and 40% weight reduction (100 pounds) for the ATP engine [8]. This was partly driven by the AM prototyping which cut the development time by a third [6].
In the medium term, GE is focused on cost reduction while continuing to lead in aerospace AM globally. Performance has suffered recently; the stock price is $8.61 versus a 5-year high of $32.88 in July 2016 [9]. In response to investor pressure, GE is planning to cut $2B in overall costs in 2018 as part of its effort to “run the company for cash” [3]. This contrasts with their investment in AM: $1.5B on ownership stakes in Arcam and ConceptLaser and $1.5B internally to develop AM capabilities [10]. However, they expect revenue and cost improvements as AM ramps up, targeting $1B in annual revenues from AM and 3,000 machines by 2020 [10]. Mohammed Ehteshami of GE Additive said, “additive allows you to get sophisticated and reduces costs at the same time” [6]. GE aims to use AM to optimize the tradeoff between weight and cost, eliminating some parts of the supply chain in an effort to streamline [8]. However, they have not yet achieved this cost savings; according to JP Morgan, AM requires additional investment and GE is focusing more on growth than cost targets [11]. As AM matures, GE will need to be more diligent about cost control, not just innovation.
Looking forward, I suggest that GE bring the AM capabilities they have built in aerospace to their other businesses and to partner companies through their AM consulting work. Specifically, the power and transportation businesses use complex parts that are good candidates for AM. GE is already setting up AM adoption strategies and goals for each business unit, but can further these efforts by sharing facilities and engineering talent in order to make best use of their investment [3]. They also have an additive consultancy, AddWorks, along with a software simulation company, GeonX (acquired in 2017), which they can use for cash while limiting additional costs and maintaining their leadership position in AM [3].
Considering the strong progress GE has made as a leading innovator in aerospace AM, as well as their weak financial performance, the most pressing question is how they will fare versus competitors. While GE is strapped for cash, their competitors are continuing to spend money (e.g., Siemens has built AM capabilities in-house and acquired Materials Solutions in 2016) [10]. Small manufacturers are beginning to develop AM capabilities as barriers to entry decrease [12]. How will GE be able to compete in this rapidly evolving space while going through a turnaround?
[1] John Coykendall et al., “3D Opportunity in Aerospace and Defense,” Deloitte University Press (2014), https://www2.deloitte.com/content/dam/insights/us/articles/additive-manufacturing-3d-opportunity-in-aerospace/DUP_706-3D-Opportunity-Aerospace-Defense_MASTER2.pdf, accessed November 2018
[2] Davide Sher, “GE Aviation already 3D printed 30,000 fuel nozzles for its LEAP engine,” 3D Printing Media Network, October 5th, 2018 https://www.3dprintingmedia.network/ge-aviation-already-3d-printed-30000-fuel-nozzles-for-its-leap-engine/, accessed November 2018
[3] General Electric, 2017 Annual report (Boston, MA: General Electric Company, 2017)
[4] Suez, “Press Releases,” https://www.suez.com/en/News/Press-Releases/SUEZ-finalizes-the-acquisition-of-GE-Water-and-Process-Technologies, accessed November 2018
[5] Wayne Duggan, “Divestiture is a Good First Step for General Electric,” US News, June 26th, 2018, https://money.usnews.com/investing/stock-market-news/articles/2018-06-26/general-electric-company-ge-stock, accessed November 2018
[6] Tomas Kellner, “An Epiphany Of Disruption: GE Additive Chief Explains How 3D Printing Will Upend Manufacturing,” GE Reports, November 13th, 2017, https://www.ge.com/reports/epiphany-disruption-ge-additive-chief-explains-3d-printing-will-upend-manufacturing/, accessed November 2018
[7] 3D Printing Industry, “GE Aviation Celebrates 30,000th 3D Printed Fuel Nozzle,” https://3dprintingindustry.com/news/ge-aviation-celebrates-30000th-3d-printed-fuel-nozzle-141165/, accessed November 2018
[8] General Electric, “Investor Relations,” https://www.ge.com/investor-relations/ar2017/additive, accessed November 2018
[9] Yahoo Finance, “General Electric,” https://finance.yahoo.com/quote/GE?p=GE, accessed November 2018
[10] Steven Winoker, “General Electric Co: Can Leadership Right the Ship? Neutral, $17 PT,” UBS Global Research, January 22nd, 2018, accessed November 2018
[11] JP Morgan, “General Electric Co. (GE US): Takeaways from ‘Industry in 3D (Additive Manufacturing)’ Event,” May 4th, 2018, accessed November 2018
Thanks for sharing this post. I happened to have the same topic, and found it interesting to see that the recommendation was somewhat different from mine. I liked your idea of applying for different business units like power and transportation. However, the question is how much benefit they could get from margin perspective, not just revenue as you pointed out given the cash constraints they have. I believe sharing the resources and facilities as well as focusing on consulting work would be more feasible to better utilize their current capabilities without spending too much. Still, the question is how they can get ahead of the competition where there are tons of companies spending money in this field. One potential way to resolve this is to have a JV structure with external firms to bring in cash while keeping additive innovation technology in-house. Another way could be to dispose the additive completely/outsource it. Whatever path they choose, I believe additive is a technology that GE cannot avoid so interesting to see which path the company takes going forward.
Beth,
Great post, really well written. I appreciate your sensitivity and possible hesitation toward the large investment required to be a leader in AM. Yet I would question if GE has much of a choice. I wrote about additive manufacturing in the sneaker business and discussed how in the future industry leaders will need to have a strong AM presence if they want to maintain market share. I think the same thought can be applied to the aerospace industry. Perhaps GE can invest in a leader in the space instead of developing the capabilities in house but either way they probably need to participate.
While the benefits from AM appears to be promising, the current financial state of the company makes me wonder whether they are well-suited to heavily invest in AM given the cash-intensive nature of the investment as well as the uncertainty around the profitability for these types of projects. I would be curious if GE has a “payback period” in mind when it rolls out these investments. Given the company is more focused on growth as opposed to cost targets, I would be worried if the expenses around funding such growth are being understated. With that, GE could consider creating clear ROI objectives for these AM investments in order to better allocate its capital.
Thanks for writing such an insightful and well-structured analysis of additive manufacturing in the context of GE. With GE’s new CEO, my hope is that they will sell off parts of the business that are a distraction to GE’s future growth in engineering and manufacturing. This way, GE can focus on maintaining a positive cash flow so that they can then acquire emerging companies that have additive manufacturing capabilities instead of building those capabilities in-house.
A very topical post! Given the circumstances, I think that the company cannot afford to lose market share within aeorospace, and further investment in AM appears critical to achieving this goal. Under the former CEO Jeff Immelt, GE tried to create conglomerate synergies by applying the work of its corporate research and development group across a broad array of its industries. Obviously, this strategy did not work out. However, as GE retrenches, I wonder if the company’s particular expertise in AM could be applied selectively across similar industries, and re-establish GE as a leading innovator?