GE’s jet-engine venture may help get France to OK another deal
GE points to the success of CFM, a 40-year-old partnership between GE and a French company, as a reason that France should approve its $13.5 billion friendly takeover offer for the power-generation and transmission business of Alstom.
The New York Times
VILLAROCHE, France — In a cavernous factory planted in farmland here south of Paris, workers assemble the best-selling aircraft engine in history, in a feat of trans-Atlantic industrial cooperation that has few parallels.
Engineers and technicians in blue overalls carefully marry U.S.-made engine cores — each containing a combustion chamber and related elements — to French-made turbofans, turbines and compressors. Combined, they form jet engines weighing 2½ tons each.
Every month, up to 65 of these powerful machines are borne by a series of yellow cranes through assembly and testing stations before being shipped out for mounting on the wings of the world’s most popular passenger jets.
The engines’ builder? CFM International, the most successful joint venture you have probably never heard of.
But one of the partners, General Electric, has been citing CFM as evidence that GE knows how to work with France.
It is Exhibit A in GE’s case that France’s government should bless the company’s $13.5 billion friendly takeover offer for the power generation and transmission business of Alstom, a struggling French energy and transportation group.
The CFM aircraft-engine partnership is “the best industrial joint venture in the history of the world,” GE’s chief, Jeffrey. Immelt, declared recently, in arguing that case.
Owned 50-50 by GE and Snecma, a unit of the French aerospace group Safran, CFM began as a risky niche project 40 years ago but has grown into an aviation juggernaut. Three-quarters of today’s twin-engine single-aisle airliners built by Boeing and Airbus, about 10,000 planes plying the world’s air routes, are powered by CFM engines.
Far back in second place is Pratt & Whitney, a unit of United Technologies.
CFM’s backlog of nearly 11,000 orders is enough to keep the mechanics here, along with their counterparts at another vast GE Aviation factory near Cincinnati, busy for most of the next decade. Worldwide, the joint venture employs about 30,000 people.
Even one of the biggest skeptics of GE’s Alstom bid, France’s economy minister Arnaud Montebourg, has praised the CFM venture, hinting that Paris might be more inclined to accept a similarly balanced GE-Alstom partnership than a takeover.
At the government’s request, GE agreed Thursday to extend its Alstom offer to June 23 to allow more study.
Yves L. Doz, a professor of management at the Insead business school near Paris, said the venture’s success has been a result of its structural simplicity. CFM has almost no overhead, with just a few dozen employees.
GE and Snecma evenly split the proceeds of every sale, leaving each company in charge of managing its own operating costs.
“There is a simple beauty to how they collaborate,” Doz said of GE and Safran. “They kept it simple, but not stupid.”
The venture had the good fortune to propose a new engine concept in the mid-1970s, when the U.S. Air Force was considering a revamp of its fleet of aerial refueling tankers.
About the same time, Boeing and Airbus were preparing to develop the short-range single-aisle jets that have become the workhorses of the air.
The partners have started assembling the first test models of a successor engine, the Leap, using lightweight carbon fiber and designed to cut fuel consumption 15 percent.
CFM hopes Leap will power most of the next generation 737s and A320s.