GE's CEO Change at Its Cash Cow Is Surprising But Smart

(Bloomberg Opinion) -- A pandemic that’s reduced air travel to a trickle makes for an unusual time to replace the head of one of the world’s biggest jet-engine makers, but that’s exactly what General Electric Co. is doing. The industrial giant announced Monday that David Joyce, the long-time CEO of its aviation unit, was stepping down and would be replaced by John Slattery, head of commercial aviation at Brazilian planemaker Embraer SA. 

“There’s never an ideal time for a transition like this, but I think the combination of where the business is in terms of the progress they’ve made in terms of getting their arms around all things Covid-related and, in turn, our view that John is simply an excellent candidate to replace the very big shoes that David will leave behind, came together at this moment,” GE CEO Larry Culp told me in a phone interview Monday after the news was announced. It also helps that Slattery’s former company Embraer failed to complete a planned joint venture with Boeing Co. after the buyer backed out earlier this year. Slattery was “somebody we’ve had our eyes on,” Culp said, “He clearly would have had a big role in all likelihood at Boeing with the venture if that had played out. But it didn’t. And here we are.” 

Slattery becomes president and CEO-elect of GE Aviation effective July 13, but won't officially assume the CEO role until September. Joyce will remain a vice chairman of the company until the end of this year and continue to serve as an adviser to GE into 2021. That extended transition should be lengthy enough to quell any speculation that this change is somehow meant to paper over bigger problems at aviation. But Slattery will no doubt have a tough job: As of May, spare engine sales and maintenance and repair-shop visits, two of the most profitable businesses for the aviation unit, were both trending down 60% for the second quarter. In a sign of just how strapped for cash airlines remain even amid a modest improvement in domestic air travel, United Airlines Holdings Inc. said Monday it would raise $5 billion by borrowing against its customer loyalty program. United expects to burn $30 million of cash a day in the third quarter, an improvement from the $40 million it’s blowing through on average in the current period but still an untenable situation. 

GE shares fell more than 5% on Monday morning but that appears to be more of a reflection of a broader market sell-off. Curious timing aside, I think this is a smart move. Joyce has largely evaded investor scrutiny because he was in charge of what up until recently was GE’s cash cow and best-performing business, but he’s still part of the old-guard of leadership left over from the tumultuous reign of Jeff Immelt, as evidenced by the rather silly vice-chairmanship title he retained that was once a staple of the company.

One criticism of Culp has been that he should have moved more aggressively to instill outside leadership, something that’s easier said than done in such a sprawling company that’s had many pockets of challenges over the last few years. There was likely something of a “if it ain’t broke, don’t fix it” mentality with the aviation division in particular. But now that the aviation unit is on the rocks for the first time in years as a result of the pandemic, there’s an opportunity to accelerate the cultural and operating reforms that are taking place across the rest of the company. A set of fresh eyes from someone with lengthy experience in the world of planemaking can only help and it’s nice to see GE again looking outside its internal ranks for a big hire, as it did with new CFO Carolina Dybeck Happe. 

Culp emphasized that he wouldn’t have felt comfortable making this kind of leadership change in mid-March when the world of aviation was in free fall, but at this point, the company feels like it at least has a sense of how the pandemic will affect its business and has a plan to deal with that. That doesn’t mean he is unmindful of the challenges facing the business.“It’s going to be a slow crawl out of the downturn,” Culp said. “While it’s getting a little bit better, the emphasis has to be on little.” 

Upon Joyce’s retirement, there will be no more vice chairmen; the others — including former CFO Jeff Bornstein and former head of Business Innovations, Beth Comstock — were swept out as part of former CEO and Immelt successor John Flannery’s overhaul. Another former vice chairman, John Rice, was brought back by Culp to serve as chairman of the power unit, earning a $2 million annual salary for a part-time job.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

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