On the Record With
JIM McNERNEY, PRESIDENT, GE AIRCRAFT ENGINES

Jim McNerney admits to a basic paranoia -- someone might get ahead of him. So, the president of GE Aircraft Engines has put in place a formidable strategy to leave everyone else in the dust as he aims to outpace market growth by a factor of two to three.

Having seen complacency cost Pratt & Whitney the narrowbody airliner market it dominated with the JT-8D, McNerney is determined not to make the same mistake.

"We own a few things today," said McNerney (exclusivity on the wildly successful Boeing 737, for example, and on the growth 777, and the regional airliner market for over 50-passenger aircraft), "but we don't own anything tomorrow. My basic paranoia has me worrying about every application. My assumption is that Pratt and Rolls are working on engines that are better than we have today-and we have to stay ahead."

Thus McNerney is presiding over the largest, broadest engine development program in GE's history. "This huge investment in R&D over the next few years is designed to protect and grow a full suite of engines," he explained. Among them: no fewer than four versions of the CF34 for 70-90 passenger regional airliners, the world's biggest turbofan in the 115,000 lbs thrust GE90-115B for the growth Boeing 777, and the Tech 56 technology demonstrator that will guarantee "Son of CFM56" is ready when required by the marketplace. "I've invested heavily to ensure we are not caught out," he said.

Coupled with this strategy is the intent to leverage the huge installed base of engines that are already flying around the world. "This is our biggest strategic asset over time," McNerney said, referring not only to the 17,000-plus CFM56 engines ordered to date for Airbus and most Boeing 737s, but also to the 4,500 CF34s for regional airliners and the broad base of CF6-powered airliners in service.

"We have a lot of initiatives there," he said. "We aim to be involved totally in the economics of our customers." Plans include expansion of engine leasing in collaboration with GE Capital Services (GECAS), the world's largest aircraft leasing company; the On Wing Support (911 emergency help) service that has become popular with airlines; upgrade kits that infuse new technology into older engines to reduce maintenance and running costs; and the likelihood of offering cheaper repaired parts instead of all-new replacements.

"This is all in addition to a spare parts stream that is growing as our installed base grows, and that will grow aggressively over the next 20 years." McNerney said.

Layered on top of that is GE's Six Sigma quality initiative, and an aggressive strategy in e-commerce that is expected to result in internal efficiencies "of hundreds of millions of dollars" over the next few years.

These plans will boost GEAE's revenues to $12 billion this year (up $1 billion from last), but more importantly will propel earnings growth by 10-15% a year in a market that is essentially flat to rising no more than five percent.

"We've almost doubled the size of our business over the last five years, but we're at that critical place where if we don't reinvest aggressively we will be subject to some competitive pressures, as our competition is very good and very bright," said McNerney. "Pratt and Rolls will be there stronger than ever."

"I am sending a message both to our competitors and to the marketplace that GE is not satisfied with where we are today. So the R&D investment will be there. I'm not going to back off on that one bit."

McNerney pointed out that GE is also strategically well placed on both the Airbus A3XX and the proposed growth Boeing 747X with the GP7000 engine, being developed in a joint venture with Pratt & Whitney.

He believes such partnerships make sense where the market is limited in size and customers benefit. McNerney doesn't preclude such a pairing with Rolls-Royce if the situation arose. "We wouldn't shy away from it; they're a superb company," he said. "We would look at that on a project to project basis," he added.

"But we have no grand plan to consolidate the industry, or always partner just with Pratt and never with Rolls-Royce-none of that," McNerney insisted. "And while we have done exclusive deals with Boeing (on the 737 and growth 777), we'd be delighted to do them with Airbus too if it makes economic sense," he said.

"I am asked a lot if I have a grand design, as if I have some industry consolidation scenario-but it's not true. Our technology is very important to us and I will share it only when I really have to, not for the heck of it," McNerney said.

By John Morris