Capital Cycles, Conglomerates and Break-ups

On 1 October 2018 General Electric's board removed John Flannery as chief executive after just over a year in the job and replaced him with Larry Culp, who had previously run Danaher. Four weeks later, on 30 October, GE reported its third-quarter results. It took a goodwill impairment of about $22 billion on its power business and cut its quarterly dividend to one cent a share. Flannery had already halved the dividend in November 2017. For a company that had been, for much of the twentieth century, the model every industrial board studied, a penny a share was a public admission that its cash could no longer be spent on shareholders (company, reported).

The causes had been building for years. GE Capital, the finance arm that for years supplied the earnings against which the manufacturing businesses were judged, had borrowed short and lent long inside a company whose investors thought they owned an industrial company. In 2015 GE had decided to sell most of it and, in the same year, closed its purchase of Alstom's power and grid businesses on 2 November 2015 for about €9.7 billion net, at the top of the gas-turbine cycle. Orders for new gas turbines collapsed from 2016. Power's long-term service agreements, twenty-year contracts whose margins had been booked on estimates, turned out to have been estimated optimistically; the Securities and Exchange Commission's investigation of GE's disclosures ended in a settlement in December 2020. Customers who had signed those contracts needed to believe that GE would still exist to honour them, and the risk of losing access to short-term funding made cutting debt urgent (company account, reported).

Culp's answer was the one this book would predict from a Danaher-trained manager. He treated GE's problem as operational and financial rather than strategic: too much inventory, poor cash conversion, late deliveries, a culture that hit the plan rather than fixed the process. He sold the biopharma business to Danaher for about $21.4 billion, closed in March 2020; shrank GE Capital to a run-off; moved decisions into the businesses; made industrial free cash flow, not adjusted earnings, the headline number; and went to the factory floor himself with lean daily management, which at the aircraft-engine business became the system GE calls FLIGHT DECK. The pandemic of 2020 emptied the skies in the middle of the plan and the plan survived it. On 9 November 2021 GE announced that it would split into three. GE HealthCare borrowed about $10 billion, paid most of it to its parent, and was distributed on 3 January 2023, one share for every three GE shares, trading from 4 January; GE kept 19.9% and had sold all of it by November 2024. GE Vernova, the energy business, was spun off on 2 April 2024, one share for every four, with little debt. What remained was GE Aerospace, which delivered 1,802 LEAP engines in 2025 and reported orders of $19.0 billion, up 49%, in the third quarter of 2026 (company). The conglomerate formed in the 1892 merger of Edison General Electric and Thomson-Houston ended