Falling Air Travel Demand Crushed GE Aviation. It Could Recover Faster Than You Think.
While General Electric (NYSE: GE) has struggled mightily in recent years, the company's aircraft engine business has been a reliable profit generator and cash cow. In 2018, GE Aviation produced $4.2 billion of free cash flow on $30.6 billion of revenue. Revenue grew to $32.9 billion in 2019, while free cash flow reached $4.4 billion. Entering 2020, GE Aviation was on track for another year of revenue and cash flow growth, despite the negative impact of the Boeing (NYSE: BA) 737 MAX grounding.
However, that momentum evaporated earlier this year as global air travel demand cratered because of the COVID-19 pandemic. (Global passenger traffic plummeted 94.3% year over year in April, according to the International Air Transport Association.) As a result, GE Aviation has been experiencing revenue declines of 50% or more for both commercial aircraft engines and aftermarket services.
It will probably take several years for global aviation demand to return to 2019 levels. That could lead to years of weak results at Boeing and other aircraft manufacturers. Fortunately, profit and cash flow should be able to recover much sooner at GE Aviation.
Source Fool.com
