General Electric (NYSE:GE), as most everyone knows, is an enormous industrial conglomerate. My intent is to pay closer attention to some of its individual businesses and technologies, beginning with those that should benefit from the booming domestic aerospace industry. One of the field's important underpinnings is Sir Isaac Newton's Third Law of Motion that tends to be summarized with the phrase "For every action, there is an equal and opposite reaction." While the principle does not explain all of flight -- such as when an aircraft continuously flies while inverted -- it is universally recognized as fundamental. GE's engines cause the gas we know as air to deflect off an airplane's wing at an angle that produces lift in excess of the vessel's weight, and make sustained flight possible. However, its products are improving amidst technological advancement.
Switching gears, there has been debate about the value of 3D printing. Some see it as a hallmark of future innovation while others decry industry stocks as hopelessly overvalued. Leaving particular companies behind, GE's next-generation aircraft engines are known as Leading Edge Aviation Propulsion ("LEAP"). Some of the improvements are attributed to 3D printing and a technology with similarities known as "Additive manufacturing" is also credited. Resultant turbofans save fuel, lower maintenance cost and emissions, and have improved reliability. On top of that, GE says LEAPs are quieter.
One of their important features is a fuel nozzle that should burn 15% better, through optimizing gas and air mixing in ways that cannot be done with conventional machine tools. Producing the part has involved challenging geometries and design criteria. Engineering processes utilize cobalt chromium, which has been used for decades in joint replacements and dental implants, to "micro-weld with a laser to create a three dimensional object layer by layer." The methodology is described as additive manufacturing, not 3D printing. It is reliable, but is not at the level of maturity of other processes.
Yet, instead of 25 welds, there are only five. GE says the nozzles
will be 25% lighter and five times more durable than their predecessors -- and since there are 20 in each engine, weight savings are significant.
The powerplant's aerodynamic properties result from 3D capabilities. The engines utilize fourth generation design on high and low pressure turbines that are produced by Safran. Burning leaner, Nitrogen Oxide ("NOx") emissions are reduced substantially. Several R&D teams and extensive testing are behind them.
Another key aspect of LEAP engineering involves use of Ceramic Matrix Composites ("CMCs"). CMCs are an ultra-lightweight material that support extremely high temperatures and pressures. GE describes the components as "A significant technological breakthrough," and says they also lead to lower fuel and maintenance costs for customers.
GE plans final assembly at its newly under construction, $100 million plant in Lafayette, IN, and an existing facility in Durham, NC.
The LEAPs are targeted at single aisle planes. Airbus (OTCPK:EADSY) is scheduled to begin ground testing of the LEAP-1A in the A320neo during September of this year. Boeing's (NYSE:BA) 737 MAX, powered exclusively by the LEAP-1B, is scheduled to enter service in 2017. The LEAP-1C should enter service in 2016 and be used in China's COMAC919. On the left side of this page there is a CFM video highlighting some of the remarkable advances in technology. GE has $83 billion in orders for LEAP engines; there are also service agreements that contribute to a $244 billion backlog.
Safran recently reported 606 First Quarter orders for LEAP engines. Also, 2014 guidance is for free cash flow to represent close to 40% of adjusted recurring operating income.
Regarding expenses, GE spends five to six percent of annual R&D revenues on 3D printing and CMCs. After a $1 billion annual investment in jet propulsion and decades developing advanced parts, GE now plans to invest over $3.5 billion in plant and equipment to meet its growing backlog. Everything described inspires confidence that GE is making sensible investments in its businesses that should enjoy strong demand and profitability in the future.
However, anyone trained in aviation knows that aircraft are eventually subject to Airworthiness Directives ("ADs") that require grounding until they are complied with. It is the owner or operator's responsibility to insure ADs are met; however, we will not know about them until trouble or mishaps result in need for fixes. Thus, while new technologies inspire confidence, it may require many years before there is complete data about reliability, and perhaps prohibitive maintenance costs. There is a saying that ADs can cripple an airplane owner.
GE is producing innovative engines and its customers have $83 billion in orders for them. It is sensibly investing in a new domestic assembly plant. Some future staff there would have happily explained to Newton how an airplane can fly upside down.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in GE, BA over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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