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General Electric Case Essay

1103 words - 5 pages

4. General Electric Company’s Aircraft Engine Business Group (AEBG) develops and produces aircraft engines for the airline industry. The airline industry demand is driven by safety, efficiency, and economic effect. The Unducted Fan Engine (UDF) design must meet this industry’s needs and expectations. The airline industry has three main players to consider, Boeing, McDonnell Douglas, and Airbus Industrie. The UDF can provide an economic advantage to the industry. The propeller design makes small-middle sized planes more fuel efficient. Planes will require 70 percent less fuel while carrying the same number of passengers, so in turn will be able to travel farther distances. This will provide ...view middle of the document...

Demand is more elastic as prices rise, and inelastic with lower prices. Profitability relies on finding the point where quantity and price work together to maximize revenue. The decrease in fuel costs and travel time per trip, while retaining same number of maximum passengers, provides the airline industry with the possibility to increase sales when at full capacity.

6. The overall problem at General Electric is due to the development of the UDF line. The root cause of the problem is if pursued will the engine have enough demand for business to be profitable.

7. General Electric has made predictions of UDF’s demand based on airline industry forecasts. One potential buyer, Boeing, is expected to introduce 3909 deliverables over the next ten years. Of these, 55 percent will be short-to-medium range airplanes that could use UDF. This illustrates that General Electric does have a demand for their product. However, Boeing and McDonnell were both cautiously enthusiastic about the anticipation of the UDF. The companies are scheduling their deliverables for the future at this time, and airlines have increased negotiation power. General Electric’s success in signing a contract would all depend on cost and date of availability.
Analyzing General Electric’s costs to the airline industry is derived from the costs they are encountering. Investment costs for General Electric’s UDF project is between $1.25 and 1.5 billion, where $50 million has already been invested. While looking to the possibility of production, they will also incur an 80 percent learning curve cost on the project. General Electric anticipates selling the engines for $5 million. They have also forecasted each airline to purchase additional lots of spare engines in conjunction with the amount of deliverables desired. Looking at sales even farther down the line, General Electric has predicted a 15 year life on new engines. All of this however is a prediction. There are still many factors that depend on the success of the project. Demand for air travel, financial conditions, actual rate of engine replacement, actual number of aircrafts capable of using UDF engines, and what share of airline market General Electric is able to obtain are all parts that could cause profitability to take a turn. The costs of the engine to the...

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