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General Electric unveiled plans back in 2021 to split itself up into three separate companies. It was the aviation business, rather than the healthcare or energy units, that boss Larry Culp chose to oversee post break-up.
Coincidence or prescience? Either way, Culp picked a winner. The recovery in air travel has powered up sales at the aerospace business. The business, which makes and services commercial and military jet engines, reported a 25 per cent jump in revenues for the third quarter. Orders and profits were both up by about a third.
Having plummeted during Covid, air travel is close to returning to pre-pandemic levels. Some 4.35bn people are expected to take to the skies in 2023, according to the International Air Transport Association (Iata), compared with the 4.54bn who flew in 2019. Global passenger traffic in August was at 95.7 per cent of pre-pandemic levels.
The rebound has not only prompted airlines to place orders for new aircraft, it is also driving demand for maintenance and spare parts. GE underscored its confidence in the sector by raising its sales and profits outlook for the year.
Of the three businesses, aviation is by far the most profitable. The profit margin came in at 20.4 per cent in the third quarter. That is more than twice what was achieved by GE Healthcare, which spun off as a separately listed company in January.
Margins at the power and renewable energy units were worse, at 6 per cent and a negative 7.6 per cent respectively. They will combine, rebrand as GE Vernova and spin out next year.
The great unshackling is doing wonders for GE’s share price. Including Tuesday’s 6 per cent gain, the stock has doubled over the past 12 months. That handily outperforms GE Healthcare, the S&P 500 and rival engine maker RTX.
Only Rolls-Royce of the UK has fared better. Its shares are up 178 per cent. Even so, investors accord more value on GE. The company, which is bigger and boasts higher margins, trades on 33 times forward earnings, against Rolls-Royce at 20 times. That looks justified as long as the wind keeps blowing in GE’s favour.
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