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Behind GE’s Aviation Segment’s Flat Revenue in 2Q17

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Aviation revenue

General Electric’s (GE) Aviation segment accounted for the second-largest share of its total 2Q17 industrial revenue. The segment contributed 23.3% to the company’s $28.0 billion industrial revenue in 2Q17. Its revenue was $6.5 billion, almost flat compared to its level in 2Q16.

However, the company’s segmental operating profit rose 11% to $1.5 billion in YoY (year-over-year) in 2Q17. The Aviation segment’s operating margins were 22.8%, a rise of 2.1% compared to the same quarter last year.

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The Aviation segment’s equipment revenue fell 16% in 2Q17. Its commercial engine shipments fell 10% on fewer legacy engines. However, its higher LEAP (Leading Edge Aviation Propulsion) engine volumes partially offset the slump in its shipments. General Electric witnessed 13% growth in its service revenue on increased commercial spares and military spares.

Aviation orders and backlog

The Aviation segment’s total orders in 2Q17 were $7.3 billion, a rise of 14%. Its equipment orders saw growth of 11%. However, its military equipment orders of $292.0 million reflected a fall of 48% due to the non-repeat of 2Q16’s order for 212 T700 helicopter engines.

Orders for commercial engines rose 35% to $1.9 billion. Higher LEAP, GE90, and GE9X engine orders led the rise. General Electric has announced $31.0 billion in orders and commitments, but these orders aren’t covered in its Aviation orders for 2Q17.

The Aviation segment’s service orders rose 15% in the quarter. Commercial services orders rose 16%, driven by robust spares growth and military services growth of 14%.

Management outlook

General Electric expects strength in the aviation market (JBLU). According to GE, global revenue passenger kilometers have risen 7.9% since the beginning of 2017. The International Air Transport Association anticipates strong growth on both domestic and international routes.

Even air freight (DAL) shipments rose 11% YoY in the first five months of 2017. The aviation load factors across the globe were over 80% during the same period.

GE’s Aviation (BA) vertical aims to ship 450–500 LEAP engines in 2017. General Electric expects its Aviation (XTN) segment’s margins to contract slightly as LEAP shipments accelerate in 2H17. On a yearly basis, the company foresees flat margins in the segment in 2017.

Next, we’ll take a look at GE’s Power segment’s 2Q17 performance.

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