This explains why GE Power will not recovery quickly.....key paragraph and root cause, from early November before the sh-t hit the fan on the 13th.
https://www.barrons.com/articles/jpmorgan-analyst-the-case-against-ge-1509761964
“Is that what you meant when you wrote that GE “is competing irrationally, giving away content and terms that underprice the risk”?
Correct. What I believe, whereas Mitsubishi Heavy Industries may come in with a gas turbine that’s a little more efficient than GE’s gas turbine and priced competitively, GE will come to the customer and say, “Hey, we will finance this for you at a very competitive rate, and make an investment in the power plant if you want us to, and throw in all this content.” And they do that at an all-in price that doesn’t necessarily position GE to withstand some of the risk that project may face over the next 18 to 24 months. Ultimately, where that will manifest itself, 18 or 24 months down the road, GE will book this charge that says, “Hey, we underestimated how much this would cost us.” But ultimately, they’ve already got the turbine in place. They’ve already got the market share. And that’s kind of the most important thing to them. That’s a big reason their cash flow has been so weak relative to their earnings. That’s where these things called contract assets, which are about $29 billion on the GE industrial balance sheet, would show up. This contract accounting is based on certain long-term assumptions that may or may not come true from a cash perspective.”
On the button. This is not just a new equipment problem. GE Power Service has waged a war on the GT, ST and Generator Service market for the past 5 years; Sales and Contractual teams here told “ lose the business and you’re fired”; from CSA renewals which could include AGP’s, DLN-2.6+, swap rotors, compressor upgrades, Mark VI+e MBC retrofits or simply bid transactional scopes against our competition.....all at below cost pricing simply to keep or take market share or in the case of CSA renewals, unrealistic assumptions on cost basis to get the numbers where our leaders would approve. Who wanted to get hauled into PM’s office to explain why we lost our service business “entitlement”?? No excuses allowed. Was this approach and strategy ethical? Were the methods and tactics we employed to execute this strategy ethical? Are there now questions, as our new leadership digs deeper into this morass and find negative cash flow from our service annuity stream, our lifeblood, that our fired Power leadership wish don’t get asked? Are they sleeping at night wondering if this past behavior will come to light and their bonuses will be clawed back as part of some financial irregularities? Can PM concentrate over his putt knowing this every time he plays?
In the past 5 years, we have destroyed the service market pricing levels on a global basis for ourselves with the intent of putting our competition out of business. In the short term, great for customers. That is the “poor execution” JF was commenting on last month.
The other shoe has not dropped yet. The truth will always come out as our friends and co-workers decide they must do the right thing. It is the only chance to rid our culture of this cancer and take back our future.