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Head East And Gun The Engines


Cover Story

HEAD EAST--AND GUN THE ENGINES

A sense of gloom hangs over General Electric Co.'s sprawling jet-engine plant in Cincinnati, where the work force is shrinking from 17,000 two years ago to 8,000 early next year. Halfway across the world, though, it's a different story. Managers in the Beijing office of GE's engine division are competing flat-out against Pratt & Whitney and Rolls-Royce PLC to secure orders in the world's hottest aviation market. China's airline industry plans to buy 100 widebody aircraft engines a year. "China has become a strategic battleground," says David Voeller, president of GE Aircraft Engines' China division.

To bolster its presence, GE is sending in more troops. It now has a 63-member Beijing staff--triple 1991's--with engineers in 10 cities across the country. Although GE has been selling jet engines in China for 14 years, only in the past year has it made China a priority. Since the beginning of 1992, GE has won $500 million in engine orders from Chinese carriers. The jet-engine market in China mirrors the competitive state of the world market, with GE claiming about one-third of all orders and Pratt the same. Rolls and others lag behind. China's airlines use or have ordered 46 GE engines and an additional 200 engines made by GE's joint venture with France's SNECMA. Most Chinese airlines have bought new Boeing 737s, which use the GE-SNECMA CFM56 engine.

On other Boeing aircraft, where airliners have a choice of engines, GE is cutting aggressive deals by sharply discounting prices. In March, China Southern chose the new GE90 engine--which is costing GE $1.5 billion to develop--for its new Boeing 777s. As the ink was drying on the China Southern deal, GE won a $225 million order with Xian-based China Northwest for engines to power 6 to 10 Airbus Industrie A300s.

PAYOFFS? To operate in China's freewheeling atmosphere, GE has to walk a fine line. The Chinese practice of payoffs and cozy deals conflicts with GE's clean corporate image--and U.S. antibribery laws. But the large size of GE's deals helps the company avoid problems with corruption, says Voel-

ler. "The bigger projects receive so much scrutiny that there isn't much opportunity for that kind of thing," he says. Also, the company has found a way to give some perks to local officials without violating American law--by training some of them in the U.S. Last April, it sent 35 senior Chinese corporate executives to GE's Crotonville (N.Y.) campus for a management-training seminar.

With the current economic retrenchment in China and the resulting clampdown on lending, GE is using its own resources to keep partners' operations humming and its own markets intact. It's buying several million dollars' worth of parts from an aircraft factory in the northern city of Xian and shipping them back home to use in marine and industrial engines. And its GE Capital Services arm will help Chinese airlines facing tighter credit to lease new jets with GE engines. With other markets stuck in the doldrums, GE is relying on China to keep its engine division flying.Lynne Curry in Beijing


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