General Electric’s new chief executive took his second big step in radically overhauling the company by cutting 12,000 jobs in its struggling power equipment business, dialling back a signature initiative of his predecessor Jeff Immelt.
The lay-offs, which account for about 4 per cent of GE’s total workforce of 295,000 at the end of last year, will come mostly outside the US and hit particularly hard in Europe, where Mr Immelt spent $10bn on an ill-fated acquisition of the energy business of Alstom.
The GE Power division, which includes Alstom’s power and grid businesses, makes turbines and other equipment for gas and coal-fired power plants that have been hit since the 2015 deal by the rise of renewable energy.
The job cuts by John Flannery, who took over as the US manufacturing group’s chief executive in August, come a month after he reduced the company’s dividend for only the second time since 1938 and decided to unload two of its longest-held divisions, including the remaining parts of the lighting business originally created by Thomas Edison.
The GE Power lay-offs are intended to help cut $1bn of costs from the division, part of a planned $3.5bn reduction across the group during the current fiscal year. Half the job cuts will be in Europe, with about 1,100 in the UK and 1,400 in Switzerland.
Russell Stokes, chief executive of GE Power, said the lay-offs were “painful but necessary” to respond to change in the market “which is driving significantly lower volumes in products and services”.
Siemens, GE’s German rival, also announced thousands of job cuts in its power division last month. About 110 large gas turbines for power generation were likely to be sold worldwide this year, Siemens said, barely more than a quarter of global production capacity of about 400 a year. Lisa Davis, who leads Siemens power and gas business, said the electricity generation industry was facing “disruption of unprecedented scope and speed”.
GE’s problems were exacerbated by the acquisition of Alstom’s business, which is focused on the coal-fired power generation that has been particularly undermined by the global shift to renewables.
GE had also been excessively optimistic about the gas-fired power market this year, over-estimating demand for service packages used to improve performance, and for smaller turbines used only during peaks in electricity demand.
Mr Stokes said the division would “remain a work in progress in 2018”. He added: “We expect market challenges to continue but this plan will position us for 2019 and beyond.”
Profits in the power division plunged to $611m in the third quarter of 2017, down 51 per cent from the same period of 2016. Robert McCarthy, an analyst at Stifel, said the headcount reductions were “long overdue”.
“Given the challenges within the global power market, today’s announcement represents an obvious next step . . . to improve margins and cash flow within the struggling business,” Mr McCarthy added.
Mr Stokes’ appointment to GE Power was one of the first management changes after Mr Flannery was announced as chief executive in June.
Steve Bolze, who had been running the division and had been seen as a potential successor to Mr Immelt, left to join Blackstone, the private equity group.
The problems in the power division have overshadowed good performances in GE’s aero engines and medical equipment businesses, and helped drive the share price down 44 per cent since the end of last year.
GE said that where required, the process of informing or consulting employees had already begun or was about to start.
In the UK, where the planned cuts represent about 6 per cent of its workforce, the company put its proposals to employees’ representatives on Thursday. Mark Elborne, chief executive of GE UK & Ireland, said the company would “now begin a consultation period before any final decisions are made”.