In a Monday morning message to employees, General Electric Co. (NYSE: GE) CEO Lawrence Culp announced that the industrial giant will reduce the number of employees in its Aviation segment by 10% and lay off about 50% of the segment’s U.S. maintenance, repair and overhaul employees for a period of 90 days.
According to the company’s most recent annual report, the Aviation segment employed about 52,000 people at the end of December. While the company doesn’t report more detailed information about its employees, GE did report that it has approximately 6,750 “GE and GE affiliate manufacturing and service employees” who are represented by the International Union of Electrical Workers (IUE-CWA). GE used the technical term “temporary lack of work” in its announcement, from which we might infer that some substantial portion of these union employees will be temporarily out of work.
These two actions plus a hiring freeze, the cancellation of merit pay increases, a “dramatic reduction” in “non-essential spending” and sharp cuts in the company’s temporary workforce are expected to preserve between $500 million and $1 billion this year.
Aviation CEO and Vice Chair David Joyce is forgoing half his salary this year and Culp is forgoing his entire salary for the rest of the year. Joyce’s base salary for 2020 is $1.83 million, and he is eligible for a $3.1 million bonus. In 2019, he was awarded $9.8 million in equity. Culp’s base salary is $2.5 million and his target bonus for 2020 is 150% of that base salary. He received $15.5 million in equity awards last year.
GE already has cut its dividend to just $0.04 a year and suspended share buybacks. One of the Aviation group’s largest customers is Boeing Co. (NYSE: BA), which announced on Friday that it is eliminating its dividend and maintaining its suspension of buybacks first instituted a year ago when the 737 Max was grounded. Canceling the dividend may not have been the company’s best move.
GE still hopes to close the sale of its BioPharma business to Danaher Corp. (NYSE: DHR) by March 31. The deal was valued at $21.4 billion (all cash) when it was announced in February 2019.
While Monday’s announcement is focused on the Aviation segment, Culp also noted that the Healthcare segment “is managing through reduced demand for certain equipment as elective procedures are postponed or canceled around the world.” GE Healthcare is the firm’s largest division with 56,000 employees. Culp noted they are “working heroically” to increase devices to help with diagnosing and treating COVID-19 patients.
Culp also wanted everyone to know that GE supports federal aid to “preserve the aviation industry” but that “we have sought any provisions in stimulus bills that would benefit GE exclusively.”
GE shares traded up about 0.5% early Monday morning, at $6.55 in a 52-week range of $5.90 to $13.26. The 12-month consensus price target on the stock is $12.16.
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