GE’s closing price of $13.83 Thursday (06/28/2018) is about 76% lower than its historic high at about $58.08 in July of 2,000 and is currently down about 25% YTD, this is only further instigated by selloff of assets and dividend cuts. Despite these ominous figures GE has a massive opportunity that many have turned a blind eye to recently.
In a recently published report by Boeing, estimates on global airplane demand between now and 2,036 are approximately 39,000 aircraft, 15,000 of which are for Asia alone valued at about 5,930B in its entirety. This is spurred greatly by a growing middle class in China and increased global connectivity. Despite popular belief the real benefactor of this aeronautical related growth will be General Electric, more so than Boeing or Airbus.
GE and its subsidiaries currently control over 50% of the global airplane engine market place in most recent figures and is additionally the biggest provider of airplane engines for both Boeing and Airbus respectively. One of its closest competitors Rolls Royce has recently undergone a series of setbacks and manufacturing delays related to the 787, an opportunity that GE has jumped on.
Now let’s get into the numbers; it costs about $24.5M to outfit a smaller single aisle, twin engine plane such as the 737 Max, while it costs upwards of $55M to outfit a wide-body 787 or 777. Based on Boeings predications on the global plane fleet makeup by 2036, rough estimates are that about $1.5T will be spent on plane engines globally, $750B of which GE will provide if GE is able to sustain its current market share, which currently shows no signs of letting up. This is heavily significant for a company which as of 06/28/18 is valued at 124B. What’s more astonishing is that the aeronautical division of GE accounts for only about 23% of the overall business.
This $750B potential revenue stream of GE could be an essential lifeline for the company in a currently unpredictable future. The massively increased potential cash flow could help bolster other GE divisions such as healthcare and energy which would help diversify its portfolio and possibly make it back to the powerhouse of a company it once was.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.