Middle River unlikely to miss a beat GE expects to keep turning out jet thrust reversers

'It's a good product line'

Plant will be vital to an important part of rich owner's domain


November 09, 1997|By Greg Schneider | Greg Schneider,SUN STAFF

Beatles or Rolling Stones, Orioles or Yankees -- some choices are more passion than performance.

The pending deal to change owners from Lockheed Martin to General Electric at the historic airplane parts plant in Middle River fits that mold: It may bruise feelings, but it isn't likely to harm much else.

The Fairfield, Conn.-based GE is even bigger and richer than Lockheed Martin. What's more, it is making an extraordinary push into the same business areas that define the Middle River Aerostructures factory.

Teams of inspectors from GE will descend on the plant in coming weeks, checking out its capabilities and getting an idea of what to do with it. The current plan is simple:

Continue making thrust reversers for GE and Pratt and Whitney jet engines.

"It's a good product line with a very good future," said Rick Kennedy, manager of media relations for GE Aircraft Engines -- Middle River's new parent.

That division, analysts say, is a good place to be. GE engines power more than half of the airplanes flying today. Based outside Cincinnati, Ohio, GE Aircraft Engines had $6.3 billion in revenue last year. This year's revenue is expected to jump by close to $2 billion because of acquisitions.

Middle River will have a clear, established role in GE Aircraft Engines -- something it lacks as part of Lockheed Martin, which is just feeling its way into the commercial aircraft market.

"It will be a growing part of the business under one of GE's core businesses, not an orphan or a stepchild," said analyst Nicholas Heymann of Prudential Securities Inc.

Lockheed Martin is transferring Middle River, two other assets and more than $1.5 billion to GE to buy back a chunk of its own preferred stock. GE acquired $1 billion worth of stock in 1993 as partial payment when it sold its aerospace division to the old Martin Marietta Corp.

If converted to common shares, the stock would be worth about $2.8 billion. GE will realize a gain of about $1 billion by selling it back. Taking assets along with cash will help GE offset some tax ramifications, but, Heymann said, Middle River is more than a capital gains shelter.

GE "wanted this piece, definitely. I heard that a long time ago," he said. Being able to sell thrust reversers in a package with engines just makes the company even more formidable.

The corporation has about a dozen business segments, and a philosophy of ranking first or second in each. The company's 239,000 employees and $79 billion in revenue, including GE Capital Services, ranked it fifth on last year's Fortune 500.

While Middle River savors its place in history -- aviation pioneer Glenn L. Martin put his headquarters there in 1929 -- GE is even older and has an even more illustrious founder. Thomas Edison started the company in 1878 as the Edison Electric Co. It is the only remaining original member of the Dow Jones industrial average, which was started in 1896.

One of the first changes workers at Middle River will notice is having to spend more than a quarter of their time training for a quality-improvement program called Six Sigma. The term relates to a manufacturing efficiency standard that GE has embraced to a phenomenal degree. The company expects to spend more than $2 billion on Six Sigma training between 1996 and 2000, with the aim of virtually eliminating flaws from manufactured products.

"It is the most fundamental, far-reaching and potentially significant initiative ever undertaken by a major U.S. corporation to optimize its competitiveness," Heymann wrote in a recent stock report on the company.

GE Aircraft Engines, with 24,000 employees in 86 countries, is one of the corporation's hottest segments, helping to lead its earnings growth this year with more than 60 percent of a booming world market.

The business has made a remarkable rally. Rival Pratt and Whitney owned 90 percent of the commercial aircraft engine market through the 1970s, though GE dominated with military planes.

The balance shifted by the mid-1980s. GE teamed with Snercma of France to produce the world's best-selling jet engine, the CFM56, which powers Boeing 737s and the Airbus A320 family.

The late '80s and early '90s were a dark period for the industry. Commercial aircraft production hit a slump, and defense budgets shriveled as the Cold War ended. GE poured money into developing new engines but struggled to make sales. It began shedding businesses, selling thrust reverser operations in 1993; the buyer, of course, was Middle River.

"At that time, the decision was driven around the fact that the facility [in Middle River], we thought, could do the job more efficiently than we could here," Kennedy said.

A thrust reverser is a giant piece of ductwork that makes a jet engine blow forward to slow a plane on landing. Middle River makes them for GE's CF6 engine -- a reliable workhorse used on widebody jetliners such as the Boeing 747 and 767, the DC-10 and the Airbus A300.

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