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GE Shelves Corporate Jets to Cut Costs Amid Sales Slump

Zacks Equity Research

Industrial goods manufacturer General Electric Company GE recently grounded its fleet of corporate jets that ferried its top executives across the world amid sales slump. Notably, sales have decreased 12% year over year to $29,558 million in second-quarter 2017. The concerted move is part of the company’s strategic plan to trim costs to the tune of $2 billion by the end of 2018.

Corporate Aviation Fleet

According to the Federal Aviation Administration records, the aviation fleet of GE includes three Challenger 600s and two Global 5000s manufactured by Bombardier Inc., a HondaJet — a light business jet manufactured by Honda Aircraft Company — and two AgustaWestland helicopters. Over the years, GE utilized its corporate jets to shuttle executives around the globe, both for personal and official purposes, with its pilots clocking hundreds of flight hours each year.

Per data from the Conklin & de Decker aircraft cost evaluator, each Challenger 600 aircraft has an annual flight and fixed cost of $1.75 million (based on a common benchmark of 423 flight hours) while that of each Global 5000 and HondaJet is $2.5 million and $0.6 million, respectively.  

Policy Change

According to the proxy statement filed by the company, ex-CEO Jeff Immelt’s expenses for personal trips alone in 2016 were $257,639. Data compiled by Bloomberg further reveal that top managers cumulatively spent $1.4 million on personal trips on corporate jets in the last three calendar years.

The current CEO John Flannery intends to save these costs to boost sagging sales and shore up earnings. Consequently, the company has changed its erstwhile policy for executive travel and has made it mandatory to avail charter services for air travel. However, the company has decided to continue with its helicopter services although it has not divulged its usage criteria.

Moving Forward

Such strategic moves seem to be the call of the hour as GE underperformed the industry with an average year-to-date loss of 23% compared to a decline of 2.1% for the latter. Investors have long been expecting such radical moves by this Zacks Rank #4 (Sell) company to boost its sagging share price. Whether such radical steps will actually be beneficial remains to be seen.

Better-ranked stocks in the industry include Federal Signal Corporation FSS, Honeywell International Inc. HON and Bunzl plc BZLFY, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Federal Signal has beaten earnings estimates thrice in the trailing four quarters with a positive surprise of 9.5%.

Honeywell has a long-term earnings growth expectation of 9.5%. It has beaten earnings estimates thrice in the trailing four quarters with a positive surprise of 2.1%.

Bunzl has a long-term earnings growth expectation of 3.2%.

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