By John Byczkowski
The Cincinnati Enquirer

In a victory that could mean $20 billion in business in the next 25 years, GE Transportation in Evendale was chosen Tuesday as one of two suppliers of jet engines for Boeing Co.'s new 7E7 aircraft.

"This makes for a huge day in the history of our jet-engine business," said David Calhoun, president and CEO of GE Transportation, formerly GE Aircraft Engines.

GE's engine technology was the difference in the competition - the biggest deal of its kind in at least a decade - because "Boeing's betting its commercial reputation on the airplane," Calhoun said.

Airbus last year passed Boeing to become the largest maker of commercial aircraft.

Calhoun would not estimate how many new jobs this supply contract might create in Greater Cincinnati, but he said it will sustain GE's presence here for years to come. GE Transportation currently has about 6,200 employees locally, including its research and development, production and service shops.

"If we didn't have this program, had this gone to our competition, we would have had a real hole in our commercial offering, and it would have set us back (in) technology development for the next couple of decades," Calhoun said.

Boeing, which hasn't had a new plane in a decade, thinks that there could be a market for 2,000 to 3,000 airplanes similar to the 7E7.

Rolls-Royce Group Plc, the second-largest maker of jet engines behind GE, was chosen as the other supplier for the $40 billion deal. The decision by Chicago-based Boeing excludes United Technologies Corp.'s Pratt & Whitney unit, the third largest jet-engine supplier.

The fuel-efficient Boeing 7E7, expected to go into service in 2008, will carry comparatively small numbers of passengers over long distances. The 200-plus passenger jet is slated to compete with Airbus' A300 and A310 airplanes and to replace Boeing's older 757 and 767 airplanes.

"The main use will be very long routes that are thin, in terms of traffic, where you put 200 people on a plane and you can take them from Bangkok to Hamburg," said Paul Nisbet, aerospace analyst with JSA Research Inc. in Newport, R.I. This will allow airlines to tear apart their money-losing hub-and-spoke systems.

For engine makers, securing a spot on an aircraft line is important because profit isn't usually made on the sale but on maintenance contracts stretching for decades.

Engines for the twin-engine 7E7 are expected to cost about $10 million each, based on list prices for engines that power the 767 and 757 models.

GE's new engine, dubbed the GENX, is being designed and tested at GE Transportation's headquarters in Evendale. Final assembly will be in Durham, N.C.

The engine will replace GE's CF6 family of engines, a best seller for the company for 30 years. Still, GE has $1 billion worth of work to do on the GENX in the next three years before the FAA will certify it for service on the 7E7, Calhoun said.

In December, parent company General Electric Co. combined its jet engine and locomotive businesses to make GE Transportation. The unit employs 25,000 worldwide.

In January, GE reported a 47 percent increase in fourth-quarter profits, fueled by the transportation unit. Net income for GE's three months ending Dec. 31 was $4.56 billion, or 45 cents a share, versus net income of $3.1 billion, or 31 cents a share, a year ago.

European alternative

Nisbet said Rolls-Royce was a logical choice as one supplier, since European airlines prefer to buy European-made engines. The only decision left was which American engine maker - GE or Pratt - would be the other supplier.

GE was the logical choice there. Nisbet said GE's proposed engine for the 7E7 is a scaled-down version of the big GE90, the world's most powerful commercial jet engine recently put into service. Pratt, once the world's largest maker of commercial jet engines, hadn't developed a new engine in almost two decades and is losing market share to GE and Rolls.

Another plus for GE was GE Credit Corp., which helps airlines finance engine purchases.

GE's victory "continues their marriage of finance and manufacturing. It's a good strategy," said Richard Aboulafia, senior analyst with the Teal Group Corp., a Washington, D.C., aerospace research firm. "It's put them in good stead for the last decade."

Before the announcement was made, Rich Henderson, who follows engines at Forecast International, an industry research firm based in Newtown, Conn., said, "Every new program is crucial to every engine maker because it's the future - it keeps them in the game."

Ready for orders

Boeing is counting on the 7E7, designed to use 20 percent less fuel than similar-sized aircraft, to take back market share from Airbus. Naming an engine maker paves the way for Boeing to win orders, said John Rogers, an analyst for D.A. Davidson & Co.

"You have to have the engines first before you're going to get an order," Rogers said. "It's not surprising that they haven't gotten any orders because they're trying to finalize all the specifications first." Rogers has a "neutral" recommendation on Boeing's stock, which he said he doesn't own.

New engine development can cost more than $1 billion over several years.General Electric spends about $1 billion annually in engine development for several models.

Boeing's board in December decided to begin offering the plane to airlines. CEO Harry Stonecipher, 67, expects to win the first order this year, possibly in the first half, he said in January.

Bloomberg News and the Associated Press contributed to this report.