This week at the Farnborough Air Show outside London, General Electric Aircraft Engines will showcase the most ambitious engine development program in its history.

        The move comes in the midst of the worst airline recession in memory. Yet GEAE is investing nearly $1 billion annually in its large and small engine development programs.

        What makes investment more remarkable is that it comes after the Sept. 11 terrorist attacks — the nadir of a tumultuous year that has shaken the commercial airline industry and reshaped the Evendale-based jet engine business.

Dave Calhoun, president of GE Aircraft Engines, tapes a web cast. (Michael Snyder photo) | ZOOM |

        “You're trained from your first day at GE to relish change and manage through change,” said GEAE president Dave Calhoun, who joined the company as a management trainee in 1979 after graduating from Virginia Polytechnic Institute.

        But even Mr. Calhoun, 45, who took over the $11 billion jet engine business in 2000 after predecessor James McNerney left to head 3M Corp., says he could never have imagined twists and turns that he and other GEAE employees experienced last year.

        It was a response that wasn't drawn from a management handbook.

        Yet the response, which started on the fly when Mr. Calhoun and GE chairman Jeffrey Immelt were stranded in Seattle following the attacks, bears the indelible print of GE's corporate culture — a culture that's made it the one of the world's most admired companies.

        GEAE, in short, focused on its customers, but did so in creative and unprecedented ways. And management kept employees informed as it reacted to this sudden reversal of fortune.

        “We've been in the jet engine business for 85 years and this is the toughest set of events that we've ever seen.” Mr. Immelt said, noting Sept. 11 brought an already slowing airline industry to a grinding halt.

        “(The GEAE) team did a great job going out and working with customers in the airline industry.

        “The other thing they did, as a leadership team, was manage through those turbulent times. They did a great job of communicating with employees through all of that.”

Calhoun visits the Childrenas Home of the Cincinnati Early Childhood Center. GEAE is a program supporter. (Glenn Hartong photo) | ZOOM |

        In recognition of GEAE's support of the airlines and the way the Evendale-based jet engine business dealt with the changes it faced, Mr. Immelt gave it two of 12 leadership awards he initiated this year to recognize excellence inside GE.

Reducing airline costs

        Much of the support going to the airlines was monetary. To date, GEAE and its sister businesses within GE have committed nearly $5 billion in various types of financial support to the airlines that were bleeding cash following the terrorist attacks.

        In addition, said Mr. Immelt, “We've saved our airline customers somewhere around $400 million through the application of Six Sigma at their locations with GE resources.”

        Six Sigma is the management approach embraced by GE in which executives, known as “black belts,” use statistical measurement techniques to find ways to cut costs and improve efficiency.

        GEAE has deployed its black belts to help airlines reduce their costs for the last few years through a program called At the Customer/For the Customer (or AC/FC). Its goal: Build better ties with customers.

        A few days after Sept. 11, Kevin McAllister, a black belt who took over management of the AC/FC program just three weeks before the terrorist attacks, sat with his staff brainstorming ways to help GEAE's customers.

        He recalls: “Everybody said. 'Well we could do 50 percent more.' I was thinking that's not the level of acceleration our customers need. I said let's do three times more. I looked around the room at the team and they were thinking: 'Are you crazy?' ”

        Nonetheless, GEAE did triple the number of AC/FC projects it undertook for airlines, which lost an estimated $7 billion last year without counting federal government loan bailouts.

        “A big part of GE culture is to take change head-on and manage it,” said Mr. McAllister. “There's no instant book you pull open — the GE handbook of management — that says here's the five things you should do.”

        “It couldn't have been a better decision,” said Mr. Calhoun. “He made that call, not because I told him to do it. He made it because he knew what the situation was. He knew the airlines were bleeding (money) and he knew he had to do something about it.”

Predicting impact

        Mr. Calhoun says when he looks back on his GE career someday he doubts anything will rival the challenges faced by the jet engine business last year.

        In June 2001, GE under then chairman Jack Welch still hoped to pull off the biggest deal in the company's history, acquiring Honeywell International, in a $45 billion acquisition that would have doubled the size of GEAE and moved it into the business of aircraft controls in a big way.

        GEAE had hundreds of employees actively working with Honeywell on how to combine the two businesses when in July the European Commission refused to approve the merger. That forced GEAE to unwind all the plans it had about combining the two companies.

        “Coping with that was tough enough,” said Mr. Calhoun in a recent interview. “Then we had Sept. 11.”

        He and Mr. Immelt, who succeeded Mr. Welch just days before, were in Seattle where Mr. Immelt was to address an industry conference sponsored by Boeing Co.

        In the uncertainty that immediately followed the attacks on the World Trade Center and the Pentagon, Mr. Immelt cancelled his speech and he and Mr. Calhoun set up shop in GE's small Seattle sales office.

        There for the next three days until they could get a corporate charter jet flight out, Mr. Immelt and Mr. Calhoun worked out of office cubicles on their laptops.

        Being cut off from their respective offices wasn't a big issue, Mr. Calhoun said. “With today's digital tools and communications, it doesn't matter if you're in Fiji, you can do this.”

        What was immediately clear, he said, was “this would have a reasonably devastating impact on the airplane providers. Boeing's quick assessment was that it would basically eliminate two to three years' worth of airplane demand. That has turned out to be pretty darn good.”

        The immediate task facing GEAE managers following Sept. 11 was figuring out what impact the drop in airline flights would have on engine orders.

Cockpit communication

        Communicating that impact to GEAE employees is where GE's digitization initiative paid off. Digitization is GE-speak for using computer technology and in particular the Internet to streamline workflow by giving employees instant access to key business measures.

        Its most frequent form are so-called “digital cockpits,” an internal Web site with 10-15 key measures managers need to focus on. In GEAE's case, the cockpits — a term coined by Mr. Immelt, a Finneytown native whose father worked at GEAE — focus on key measures such as engine and spare parts orders.

        Each cockpit measure is displayed as a colored dial: Green is good. Yellow bears watching, and red means trouble.

        But it was computer Webcasts in the days immediately after Sept. 11, where digitization paid early dividends.

        “We never thought about digitization ... in the communication context. We mostly think about it as a productivity tool,” Mr. Calhoun said.

        “Nobody said this is a way to mobilize change and communicate effectively.” he said. “Yet when Sept. 11 happened we were in a situation where you had to communicate to all our associates week-by-week just to keep up. Nobody is smart enough to know all the things they've got to know when a calamity hits like this. It's impossible.”

        On Sept. 17, less than a week after the attacks, Mr. Calhoun made the first of his weekly Webcasts that all employees could access, sharing with them the state of the business.

        Mr. Calhoun, who had used Webcasts to communicate with employees previously as head of GE Employers Reinsurance business, had been pushing for their use at GEAE.

        “When 9-11 happened, I said, 'OK, let's do it, because I can't wait for newsletters, or staff meetings. I can't wait for executive presentations.' ”

        Initially, Mr. Calhoun didn't use a script.

        “We just talked about what's happening on the orders front. What Boeing and Airbus had asked us to do and what was happening with the airlines,” he said.

        “All of a sudden the entire customer base we do business with looked like they were going bankrupt. Literally all of them,” Mr. Calhoun said.

Job cuts

        Within about three weeks Boeing Co. announced it would eliminate 30,000 jobs because of the dropoff in demand. GEAE meanwhile was working through its own production cuts.

        That culminated in GEAE's announcement in early October that it would eliminate 4,000 jobs worldwide, including about 800 in Greater Cincinnati.

        “One of the things we did when we got back to Cincinnati was have early morning, daily meetings with the sales and marketing folks to review the situation airline-by-airline,” said Chuck Chadwell, GEAE vice president for commercial airlines who was in Seattle with Mr. Immelt and Mr. Calhoun.

        “We were getting calls from them. And we were calling them, asking how can be we help, what can we do?” he said.

        “The first, second and third thing they asked for was help with cash because they're not making any money, and they still had bills to pay. And on the heels of that, they also wanted help in reducing costs,” said Lorraine Bolsinger, vice president and general manger of engine services market development and sales.

        GEAE quickly did things like defer scheduled payments or worked out sale and leaseback agreements with airlines to help their cash flow. It also brought in other sister organizations such as GE Capital and its aircraft leasing arm, Aviation Services, which is headed by Henry Hubschman, a former chief lawyer for GEAE, to offer financing help to the airlines.

        Over succeeding months, Ms. Bolsinger said GEAE developed a shopping list of 43 different types of assistance GE was ready to offer airlines ranging from payment deferrals to bringing in a AC/FC team to help cut costs.

Valuable relationship

        GEAE's At the Customer/For the Customer effort is free to its airline customers, but it isn't charity, Mr. Chadwell points out.

        “It was meant show the airlines there's more value working with GE than working with somebody else. Because we can bring other things in addition to the engine,” he said.

        The closer ties between GEAE and their customer has already paid dividends, Ms. Bolsinger said.

        The company's backlog of so-called Customer Service Agreement, long-term agreements

        under which GEAE agrees to provide engine services at a set price, have increased about $4 billion since last year.

        One thing GEAE didn't do was cut prices on its repair parts. Traditionally, the engine maker earns little

        on the engines sales, hoping to make it up on repair parts over the 20 years or so the engine is in service.

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