GE's recovery takes shape as Boeing 737 MAX returns

By Rachit Vats

(Reuters) - The return of Boeing Co's 737 MAX jets is likely to boost General Electric Co's cash position this year and investors are expecting to see signs of improvement on Tuesday when GE reports its fourth-quarter results.

A recovery in the aviation business, GE's most profitable until the coronavirus pandemic, is critical for Chief Executive Larry Culp, who is trying to turn around the industrial conglomerate by improving free cash flow and trimming its colossal debt.

GE has targeted at least $2.5 billion free cash flow in the fourth quarter and a return to positive cash flow for 2021. That is broadly in line with investors' expectations of $2.6 billion fourth-quarter cash flow and about $3 billion in 2021, according to Refinitiv data.

While analysts view Boeing's goal of delivering about half of its inventory of 450 737 MAXs this year as "optimistic", they expect those deliveries will make GE's aviation unit an important driver of GE's cash recovery.

Culp arrived in 2018 just months after the 129-year-old company dropped out of Wall Street's blue-chip index following years of dwindling profits and set out to offload businesses to reduce debt and stop bleeding cash. The pandemic derailed those efforts, but analysts expect progress again this year.

"Aviation could return to $4-5 billion of cash flow annually by 2024. Healthcare should be in the range of $2.5-3 billion and Power/Renewables combined in the $1-1.5 billion range," Wolfe Research analyst Nigel Coe said.

Boeing is the main customer of GE's aviation unit, which makes engines for the jet with French partner Safran SA. Payments on delivery of 27 MAX jets should already boost GE's fourth-quarter numbers.

Amid the pandemic, healthcare emerged as GE's top earner, generating $765 million in profit in the third quarter, compared with aviation's $356 million.

Analysts expect those to rise to $882 million and $569 million, respectively, in the fourth quarter and aviation to make the biggest cash contribution this year again, with about $3.3 billion, and healthcare delivering $2.9 billion.

"The fourth-quarter numbers and guidance for 2021 will firmly re-establish that General Electric is back on track and has returned to comfortably above the pre-pandemic performance levels," said William Blair analyst Nicholas Heyman.

GE shares have recovered most of a 60% slump triggered by the pandemic and are up about 6% so far this year at above $11, still below February 2020 levels around $13.

(Reporting by Rachit Vats in Bengaluru; Editing by Tomasz Janowski and Saumyadeb Chakrabarty)