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GE Gets Orders Worth $27B

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GE Aviation, a part of General Electric (GE - Free Report) and Nexcelle have signed an agreement whereby Nexcelle’s nacelle system (a streamlined enclosure on an aircraft that provides shelter to the crew, cargo and the engine) will be included in the GE Passport 20 jet engine. This agreement was signed by the companies at the Paris Air Show.

As per the agreement, Nexcelle will develop, produce and deliver nacelles and thrust reversers for GE Aviation’s Passport 20 jet engine’s integrated propulsion system. This new propulsion system will be used on GE’s new Bombardier Global 7000 and 8000 business jet aircraft.                                

Nexcelle is a leading supplier of engine nacelles, thrust reversers and aerostructures. Based in Cincinati, Ohio, the company offers expertise in the design, development, production and support of integrated propulsion systems for a wide range of aircraft.

GE aviation and its affiliates did well at the Paris Air Show to pick up deals worth $27 billion. The new Leap Engine developed by CFM International, (which is a 50:50 joint venture between GE aviation and Snecma (Safran Group)) was in huge demand among leading airline operators. The company bagged orders for approximately 1,400 engines worth $16 billion, as well as about $11 billion in service agreements.

Leap-X is a new baseline turbofan engine to power modern-day narrow-body aircraft. It has been developed using the revolutionary three-dimensional, woven resin transfer molding (3-DW RTM) technology that dramatically reduces engine weight while providing a more durable blade.

For more than two and a half decades, GE has been developing Ceramic Matrix Composite (CMC) technology. This is an ultra-light-weight material and will provide support under extremely high temperatures found in the high-pressure turbine.

Over the past two years, the Technology Infrastructure segment under which GE classifies its aviation business has been seeing revenue declines. The decline was primarily related to lower volumes due to lower commercial and military equipment sales and services in fiscal 2010, primarily due to the recession.

However, Technology Infrastructure orders increased to $41.5 billion in 2010 from $37.9 billion in 2009. The $39.4 billion total backlog at year-end 2010 comprised unfulfilled product orders of $27.7 billion (of which 46% was scheduled for delivery in 2011) and product services orders of $11.7 billion (all of which was scheduled for delivery in 2011).

The International Air Transport Association (IATA) expects 2011 profits softening to the level of $8.6 billion from its previous expectation of $9.1 billion. The factors weighing on earnings include the escalating fuel prices, weak traffic volumes and the March 11 catastrophe in Japan, which are expected to suppress demand for air travel.  

However, worldwide air freight volumes rebounded in 2010 to the 2008 peak level. This rebound was particularly apparent in Asia, where volumes were well above previous peak levels established in 2007. Air freight is expected to be unchanged in 2011 due to excess capacity and yield pressures as demand softens.

North American carriers are facing challenges from rising fuel prices. Profits in the region are expected to fall to $3.2 billion from $4.7 billion reported in 2010.

GE Aviation is a leading supplier of commercial and military jet engines and components. It also provides avionics, electric power and mechanical systems for aircraft along with an extensive global service network to support these products.

The company includes this business under the broad segment Technology Infrastructure (25.2% of total revenues in 2010), which also includes its Healthcare and Transportation businesses. Aviation comprises 46.5% of total revenues of the Technology Infrastructure segment.

GE currently holds a Zacks #3 Rank implying a short-term "Hold" rating.

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