Q1 2020 Earnings Call

Good morning, and welcome to the first quarter 2020 General Electric Company earnings Conference call My name spread to know the your operator for today at this time all participants are going to listen only mode. Later, we will conduct a question answer session during which you can delstar. One if you have to question. Please note. This conference is being recorded.

And I will now turn it over to Steve Winoker, Vice President of Investor Communications, you may begin Sir.

Thanks, Brandon Good morning, and welcome to GE, each first quarter 2020 earnings call I'm joined by our Chairman and CEO, Larry called and CFO Carol Leaner died that capa before we start I'd like to remind you that the press release and presentation are available on our website note that some of the statements.

We're making are forward looking at are based in our best view of the world and our businesses as we see them today as described in our FCC filings and on our website those elements can change at the world changes with that I'll hand, the call over to Larry.

Steve Thanks, Good morning, everyone.

We hope you in your families are healthy and safe.

Our thought there with all of those affected by this global pandemic recognize this is a very difficult and challenging time.

For everyone.

On behalf of GE I want to express our gratitude to those on the front lines in the medical community many of whom we're privileged the core customers working tirelessly to protect all of us.

Thank you.

When we last spoke during our outlook call in March we were encouraged by the continued strength in aviation and health care and the progress made in powered renewables in the eight weeks sense World, It's fundamentally changed.

And we all know the cobot 19 pandemic a bold rapidly.

Being hard and hitting bass.

Well. This is an earnings call our goal to dance to provide you with the most current and relevant information, we have and as always to be as open and transparent as we possibly can.

So forgive us if we run a little long today.

The cobot 19 dynamics at GE.

Like the economy at larger fluid and still evolving, but clearly challenging in the near term.

With that I'll start with our response to covert 19, Karen leader, who is joining our earnings call for the first time will cover the financials, then I'll wrap with a more in depth view of our current operations.

Moving to slide two during this unprecedented time, we're focused on three areas.

First the health and safety of our employees in our communities.

We established a cobot 19 task force that is working to ensure we're doing everything in our ability to protect the health and safety and aligning with various government directives and medical advisories in real time.

To that end, we've incurred slows employees, who were not directly performing customer facing a central jobs to work from home wherever possible.

But given the mission critical work, we do would you be not everyone can stay home.

Back to acknowledge our employees out in the field and in our factories for their unwavering dedication is they continue to deliver for our customers supporting essential services like hospitals power generation.

Airlines and National Defense.

We're ensuring they have with they need to do their job safely. This includes temperature screenings based coverings and glimpses necessary and physical distancing, all keeping with national state and local guidelines.

I'm also inspired by the <unk> support that our employees have shown each other.

We recently established an employee relief bond and more than 75 senior leaders across GE have contributed portions of their salary to support those affected by this crisis.

Our second priority is continuing to serve our customers in health care, we're ramping production of critical medical equipment used to diagnose and treat koby 19 patients, including respiratory CP monitoring solutions X Ray anesthesia and point of care ultrasound product lines.

Already our team has doubled production of ventilators and plans to double again by the end of June.

Healthcare's digital in AI solutions are helping hospitals remotely monitor multiple patients.

At once and automate wrote tasks. So clinicians can spend more of their precious time focused on lifesaving work.

Across all our businesses, one constant communication with employees customers suppliers and governments to maintain business continuity without disruption.

Our third priority is preserving our strength.

First and foremost sound liquidity is crucial and solidifying our balance sheet remains a key focus.

With the recent closing of the Biopharma transaction, we received $20 billion had net proceeds.

This provides she would optionality to protect our company and remain flexible.

And importantly, we retained to $17 billion, leading healthcare business at the center of an ecosystem striving for precision health.

[noise] preserving our strength at the time like this also requires a different operating model.

Here I'd draw in my experience is a CEO managing through 911, and the global financial crisis.

There are three steps in this model embrace reality redefined winning and execute the plan.

Easy to say.

Hard to do.

Starting with embraced reality this is necessary in a time like this one so much has changed and remains uncertain for us it needs recognizing that we're facing significant headwinds in aviation and we may be for awhile.

We wish it were otherwise, but that's not our reality.

Next redefined winning we came into 2020 with a plan to define winning is profitable growth margin expansion in cash generation.

Now, we need to adjust to the altered environment to focus and inspire our team.

Let me share some ways. We're doing this well safety is always been a top priority for GE Cobot 19 has reshaped our seat the agenda.

In terms of our financial priorities, improving our cash generation and decremental margin in the second half our key focus areas and in health care, we clearly didn't come into the you're expecting to increase our ventilator production fourfold.

But we will.

And finally execute the plan, we're moving the speed discipline and intensity to improve our cost structure targeting more than 2 billion of cost actions in more than 3 billion of cash actions.

And this is where leaders, particularly relevant from daily management through traditional kind buying systems, which help reset inventory levels to new problem solving tools rolling out across GE.

Let me share a recent example from gas power.

You know rebuilt facility the team use lean to cut the distance that a single part travels during production from three miles, yes three miles.

To a mir 165 feet.

Flashing the time it took to make that part by 42%.

These are the sort of operational efficiencies that are more central than ever in this environment.

So that's our approach here, we're facing the pandemic head on while continuing to execute our long term strategy for GE.

Moving to slide three you'll find a snapshot of our first quarter results and currently that will take you through this in detail, but first a few topline thoughts.

As I noted we entered the year with momentum however, as cobot night team continued to spread globally.

I'm not going to sugar Coke that we got hit hard and some of our highest margin parts of our best performing businesses.

This is especially true it aviation services were Kobin 19 cost a rapid decline in commercial aviation demand and even essential travel became difficult in the second half of March.

Similar situation also transpired at power services were travel restrictions costs by close to 90 impacted our field personnel.

And across all of our businesses, we started to see some project development and execution issues.

At the same time health care performed well due to urgent demand for our products used in the fight against code at 19.

Taking a step back about 80% of our roughly 400 billion dollar backlog is in services, which have a long time horizon.

And while services have been hurt in the near term those capabilities remain one of our greatest strengths. They keep us close to our customers with deep strategic relationships, especially through periods of volatility.

So in the spirit of embracing reality, let me frame for you what we're seeing right now at a high level and then I'll do a deeper dive. After currently not reviews the first quarter.

In aviation energy cash airlines are conserving cash not flying the plane they have limiting maintenance their spend where they can and all the while the spring orders in many places.

No one can predict when and how leisure and business travel will resume.

But the reality is likely it's not soon.

So we are redefining winning for margin expansion in 2022, improving our decremental margins this year.

Requires we aggressively adjust our cost structure, that's what when he looks like aviation and they're moving forward with a comprehensive plan to be clear, we'll get back to targeting those 20% operating margins post pandemic.

In health care, we've been on the front lines betting cobot 19, since the early days and move on.

This is fundamental to our mission.

While we see demand surge for certain products other products, including those in our high margin pharmaceutical diagnostics business have been negatively impacted.

As multiple procedures are deferred.

Health care is likely to rebound faster than aviation.

But we're still fast tracking additional cost out actions.

Targeting an incremental $700 million since Karen and the team spoke with you in December.

Empowering renewable energy the impact of Coca 19 has been more limited to date.

Specifically at power, we're experiencing outage delays and restrictions and field service travel and we're monitoring new unit orders in services.

To offset this were further rightsizing the cost structure and in power, we already reduced head count by 700.

In the first quarter.

Now clearly across to either or number of large variables that are unknown at this point, including the full duration magnitude and pace of <unk> recovery across our end markets operations and supply chains.

We're also monitoring how the resulting interest rate environment will impact pension obligations and our run off insurance business.

So let me tell you what we do know the second quarter will be the first full quarter with pressure from Cobot 19, and we expect that our financial results will decline sequentially before they improve later this year.

The bottom line is we have some challenging times ahead, but this too shall pass I'm confident the underlying reset we took over the last 18 months to focus to east portfolio, and it's still a greater focus on customers and lead.

Give us a running start for what we face today.

Moreover.

I've seen our response to covert 19 signs of how we're moving faster to change GE for good morning framework to help reduce inventories in the base demand challenges.

Maybe Asian.

Travel restrictions spring on the use of digital technology to complete field work in renewables and more capital discipline across the board.

With new leaders assimilating faster and with real impact healthcare comes to mind.

So all of this in combination with the planned actions will discuss later are accelerating our transformation of GE.

With that I'll turn it over to Carolina, but before I do let me say how pleased I have to have her on board and too short months. It's clear we share the same perspectives of embracing reality and operational bias for action.

And executing with speed.

Thank you Larry.

I'm proud to during my first on core FFO of.

And has made this company and so forth.

As you noted operating an unprecedented times.

Focused on.

Just keeping our financial position strong assays with a keen eye on leverage and liquidity asylum Casco and capital discipline.

Budget is absent over the last couple of years I've put us on strongest looking ahead of the situation we've into more.

Second working with our businesses to take the rights action not only to help mitigate the impact on Kogas my answer but to serve customers better Oprah smarter and more efficiently.

Great.

Holistically.

Well, let me laser focused on the near term also managing for the long time.

Working together to reduce complexity of changes.

I didn't catch up that deliver sustainable earnings and cash flow generation.

[noise] today my intention is to take you through other results into play and provide context that help you see what I see across the businesses.

Let's turn to slide four.

This was a challenging quarter for us as the macro environment rapidly deteriorated.

Taking it from the top.

First quarter orders were down 3% organically or down for X biopharma.

Well in power and has kept was offset by double digit decline. In addition, a renewable.

Both equipment and service orders were down low single digit.

I will cover the by business Okay.

Industrial revenue was down 5% organic as well down six next biopharma equipment revenue flat services by 9%. Both addition on power services adversely impacted in the cost that you have to koby went.

And just I think that's a profit margins were down 460 basis points organically.

Most of the dilution came from ideation.

Good education impact, mostly driven by Cobot mountain.

On the stuff it asks what stocking continuing its 72 cents.

Well that 75 cents gain primarily related to the 11.5 billion Oncotype skin. Some the Biopharma fund, which also included one cents of tax benefit in jeopardy.

This was partially offset by a 4.6 billion after tax loss on our remaining bake a huge space, which when measured at fair value split.

On the restructuring and other items, we incurred two cents of charges.

This is principally related to the reduction of aviation Qs workforce.

[noise] softly nonoperating pension and other benefit class was six cents headwind to caught that.

Excluding this item adjusted EPS was five cents.

As described on earnings performance was materially impacted by cobot nine to another market dynamics. This was primarily innovation engine you touched a negative marks on the path in both because I'm sure that's when a tight credit cost.

We estimate the first quarter industrial operating profit impact from Covidien to roughly 700 million.

So I have it included lower aftermarket sales project Loon and supply chain constant.

It is higher than anticipated at the much LTL cone, reflecting the rough global progression of the pandemic.

I would try it fluctuates launch year affected the slowdown in China.

I will focus on addressing these pandemic global you're targeting more than 2 billion of close out this year.

And this may not.

The full impact will rapidly addressing both cost and cash and making our businesses.

Customer focused over time.

I can tell you for likes bills that if this program builds momentum and the company, let us begin to see how powerful results can be they tend to extend beyond those states. It goes so just what I assume sofa I'm encouraged that we can have some of that extends a team.

Moving to cash.

As many of you know the first quarter is typically note I would say cash flow.

This year were impacted by our usual seasonality, but also cobiz mentioned, especially innovation.

Industrial free cash so well the use of 2.2 billion 1 billion worse than prior yet, but notably excluding aviation industry business improved free cash flows. This is lost yet.

Turning to the key drivers in the Quebec.

Starting with net earnings exclude the biopharm again, and the Mark to market baking shoots investment income depreciation and amortization totaled 700 million, that's down 900 million versus prior year.

Net working capital negative 2.6 billion some significant use of cash down 1.1 billion.

Let me take it through the main factors.

First we had the net income in accounts receivable driven by seasonally lower volume and get pilot on renewables.

Second we had an outflow in accounts payable driven by lower volume.

Hi, disbursements related to play a material buys in many of them.

Such.

The increased inventory to support an expected second and third quarter volume run in onshore wind.

Oh took declined.

Plus.

Just to make sense.

Okay us new orders and milestone payments were more than offsets by birnbaum fire progress payments in Poland menu.

Thus cheap we also spent about 600 million goes topic.

They don't track now to me just trying to 5% of other topic spend they said.

Okay. So in total we estimate the first quarter impact from Covidien too was around 1 billion the majority of which what's happened obviously.

I see look for but we.

We expect continued free cash flow pressure.

Targeting more than 3 billion in cash action.

However over time, we know that each business can be a better question rich as we improve execution.

Moving to slide six.

We continue to strengthen our balance sheet.

Not just my funding the quarter, let's kissing biopharma.

It tends to be an open we ended the quarter with 33.8 billion of industry cash.

Trucks, and the kids 16 billion sequentially.

Jay Capital ended with 13.5 billion of cash found approximately 5.3 billion sequentially, even by contractual maturity.

Looking at the whole liquidity balance covering 12 months.

Yes.

The recent to take action to enhance and expand our liquidity and pay down debt.

Well it than 17 <unk> entered into a three year 15 billion syndicated revolving credit facility.

The plan refinancing, which is probably a trend to be syndicated revolver credit facility.

Including bilateral agreements, we expect to have in the range of 20 to be them in total credit line exit so much.

Following the sale of bio pharma, we also improved liquidity profile Nathan.

We reduced our near term debt maturity by issuing 6 billion engine.

<unk>.

Subsequently tendering for 4.2 billion of that.

The plan to use the remaining 1.8 billion offices to further debt reduction.

The combination of transaction that would be leveraged neutral.

Well I mean do they kept.

Industrial has no debt maturities in Twentytwenty, one 1.9 billion of maturity in tend to trend to 200.

On the meeting tend to concentrate.

Let's see industrial litigious death by approximately 7 billion would reduce compassionate use by 1.1 billion in the quarter.

We paid 6 billion of the intercompany loans from GE capital in April using proceeds from Biopharma.

That's it kept the reduced EPS by 4 billion.

We were just extending death by 10 billion you have to those including 4.7 billion of maturity in the quarter and an additional 5.4 billion twentytwenty maturity tended in April.

Okay, but he is 6 billion repayments for the intercompany loan.

Oh, the financial policy go swimming.

Maintaining a high cash balance.

Moving less than 2.5 times sniff that you begin to industrial.

Than four times debt to equity at GE capital.

The credit drifting into seem to a range.

And reinstating a dividend in diabetes, so the time.

We remain committed to achieving our leverage targets, but we now expect to achieve those targets over longer period than previously not shifted impact of cold.

Next on slide seven will discuss industrial segments with UBS.

Starting with our vision.

That's you've noted Oh subsequent results for materially impacted orders were down 13% organically, both equipment and service or the style.

Equipment orders were down 27%, primarily driven by commercial inkjet business due to the Max grounding the cobot impact.

Surface orders were down 4%, primarily driven by collection services, partially offset by military which one you fighter and helicopter service orders from doing it with the [noise].

So this was stronger than revenues due to the military orders, which were up 60% Seattle yet.

Backlog of 273 billion was flat sequentially and up 22% versus prior year, primarily driven by long term service it when you.

I think Joe did roughly 200 leased one bins unit order counts most of the court that.

Revenue was down 11% okay.

Revenue was down 17% sufficient evidence of into two commercial installed on spare engine units this quarter, but so to seven versus prior year.

City of 272, they plan on 1 billion. It's 152, that's if I'm 56 units were down night it given its.

Service revenue was down 8% just to commercial services down 11%.

This was driven by lower spare parts shipments and lower shop visits from the impact of called the mountain.

Totally military revenue was down 7% with 104 to six engine unit shipments down 9%.

This was driven by supply chain fulfillment dynamics and inbound materialise, partially offset by the advanced program scopes.

Operating profit was down 39%, well junkie, primarily on lower volume negative mix pressure in commercial services from the impact to covert 19.

Spare engine units.

Segment margin contracted 650 basis points organically.

It's primarily due to covert 19 impacting other commercial businesses in both engine and so does it.

The continued 73 seven Max grounding.

The nonrepeat of prior year favorable contract adjustment.

The first full quarter revenue from our Aeroderivative business now that we have de consolidated Baker Hughes.

As a bit more color coded nine to represent just overhaul of the margin difference.

Mr. Seven Max timing, considering installed on spare engine volumes on supply chain excess costs represent additional 20% of design.

Moving to healthcare, which performed well.

What does it up 9% organically equipment orders for ups, what testifies to put up one.

Well, that's excluding my follow up 6% driven by a search them on related to covert mountain.

This was partially offset by the lows in procurement and lower demand of products less related to covert 90.

Examples like an intervention in healthcare systems, I felt comfortable that a new catches us in a from a chicken diagnostic.

Life Sciences orders temps.

Backlog was 17.4 billion.

6% sequentially and down through versus.

Fire, yet due to the sale of violent.

Getting biopharma bucket was up 1% sequentially I'm sure most is paying.

Revenue was up 2% organically and 1% excluding biopharma.

Healthcare systems revenue was up 2% for services and 3%.

Equipments that.

Life Sciences, so that flips and.

Operating profit was up 10% organic you.

Segment margin expanded 140 basis points organic as well so two basis points excluding biopharma.

So driven by volume and cost productivity upset by price and logistics pressures from Koby mentioned.

Nick on power, we had mixed results for the equipment topline strength upset by telling just conservative.

For those went up 14% organically.

Well just went up 8% with equipment orders up so to 7% largely due to onetime too on the.

The 2.2 Gigawatts of orders for nine gas turbine.

Gas power. So this will those were down 3% with construction services found on transactional upgrades roughly flat.

Our portfolio was up 27% with strong equipment and services orders in food and public collection.

Backlog totaled 85 billion that sequentially and down 1% dresses player. Jeff was 71 billion that's got sequentially.

Revenue was down 12% Dynacon launch a different by services.

Got pilot revenue was down 20%.

Yeah power equipment revenue was up 4% organically on higher hedged by mix, we ship nine gas turbine most oh, sorry, we shipped seven guest Tobey. This is nine disturbance in the first clips of 19.

Yes, I would customers, it's a commercial operations over 32 units translating for most flip from seven Gigawatts of new powered added to the good.

Saskpower services revenue was down 19% MACI.

Outage it this and transactions they push out of the quarter due to covert 19, and we had lower revenue on high margin, but.

Despite this services, which they have been down into court, though this was driven by supply base constraint on helped us talk parts and outage cost overall pressuring I was to the same legitimate.

Power portfolio revenue was down 12% this was driven by lower volumes across the sub segments.

Then we had lower service if I feel convertibility nuclear the decline was driven by outage timing power conversion, we defined as a parent focused on high margin Luckett segment.

Operating profit was down 279 million that's segment margin contracted 570 basis points organic.

Well I guess pound fixed costs were down 9% sequentially and fixed versus trailer, it's what's more than offset by lower service volume and additional cost from coping thinking disruption.

Next quarter or any of us.

Continued revenue growth was more than offset by fulfillment and execution issues impacting profitability.

[noise] orders were down 11% organically equipment, but down 11 assist likely a stronger U.S. citizen.

This was down 23%.

But its booked in the quarter well the international orders, which were up 11%.

Backlog of 26.5 billion was down 4% sequentially, but up 5% Mrs play yet.

Revenue was up 20% forgotten the game.

This was mainly driven by onshore wind up 60%.

Onshore equipment revenue was up 81% with a new unit turbine deliveries of 731 more than doubled prior year and Repower kit delivery of 200 and mountain up 40%.

Onshore services revenue, excluding the probably kits sold up 15%.

Well in short whether pricing index continues to stabilize at 1% in line with Mr. Trump.

Grid revenue was down 8%, mostly due to psychosis and delayed milestones Stephen by Covina <unk>.

Operating loss was down 150 million.

This was driven by the supply chain disruptions due to covert mountain for payment delays and the non recurrence of non good no Tuscan from an offshore wind contract termination in the prior year.

This was partially offset by higher onshore volume.

Segment margin contracted 210 basis point, mainly driven by the same items mentioned about pondering range of execution issues. We're fixing agreed on hydro.

Moving to slide it.

Starting with GE capital.

In the quarter adjusted continue operations generated a net loss of 118 million.

This excludes the impact of the kept a loss tax benefits utilized against biopharm again, resulting in a minute running.

Compared to prior year, which excludes excludes the you with tax reform benefit continuing net earnings was unfavorable by 854 million.

This was due to negative mark anytime and chica on diesel and lower again.

Earnings from a smaller I suppose.

This was partially offset by lower excess interest cost an estimate.

We ended the quarter with hundred inbound valuable assets excluding liquidity.

This was down 1 billion sequentially, primarily driven by GE tester to us It said depreciation and collection, partially offset by new volume.

It's worth assets with flat sequentially, a decrease in unrealized gains driven primarily by higher lucky but will suffer.

The and issuance the capital contribution.

Supply chain finest assets without a photo supplies continue to migrate and U.S.J.

It's not that Onea tepid it ended the quarter with 13.5 billion of liquidity.

Capital also ended and 54.5 billion, that's which was down 4.5 billion sequentially driven by debt maturity.

Discontinued operations generated a net loss mohamad and 64 million barrels on favorable versus prior yet by 200 million.

If they can to provide the required support to GE capital in line with insurance touched or something.

Nick just like our business it corporate moves to adjust our new reality.

We're continuing to take additional structural actions to rationalize costs reduced the size and scope it.

Looking at the caught that adjusted corporate costs was 374 million.

Just on higher but that's primarily due to higher intercompany profit eliminations, which was partially offset by better digital performance from containing cost reduction actions.

I'm showing up or isn't what 25% noble.

Primarily driven by digital improvement.

You can assume from digital performance that the focused cost reduction programs are getting traction.

We continue to rightsize function cost across to push more accountability into the division.

Larry and I are conducting cost on cash reviews of each of the businesses, especially in the current environment. So you can expect that they would be more to come.

<unk>.

I have spent most of my carrier in leadership at noon decentralized companies.

Fundamentally I believe companies outperform when they have a structure that empowers businesses to take the right direction quickie.

These type of structure, it's critical to respond to situations like we have today, the covidien too, but also to be prepared to pivot to growth.

We're working toward this code there would be more to come.

That's correct Larry.

Currently thank you.

There's no question that Kobin 19 is putting real pressure on our businesses.

Given that so much has changed and this quarter will be our first full quarter with pressure from cobot 19, I'd like to spend some time, you're discussing second quarter trending based on what we're seeing through the month of April.

So starting with aviation on slide nine.

Of all of our industrial segments. This business is feeling the impact of the pandemic most severely.

The rapid contraction air travel has resulted in a significant reduction in demand as commercial airline suspend routes and ground barge percentages of their fleets.

Well covered commercial services and engines on the next two slides in detail, but on the other end of the spectrum demand for our military business remains strong.

To that end we've.

Rebalanced some of our capacity to meet this increase demand.

To offset some pressure in the commercial business, we're taking several steps that while painful preserve our ability to adapt as the environment continues to evolve.

We previously announced $501 billion and costs in cash actions.

And we've now increase this targeting more than 1 billion in cost actions and more than 2 billion in cash actions.

This will be achieved through different initiatives, some of which had been completed others in flight as we speak.

These include a 10% reduction in Aviations told a U.S. workforce and furloughs impacting 50% of its U.S. maintenance repair and overhaul facilities and new engine.

Manufacture.

We'll continue to monitor and potentially extend as required.

We're also focused on reducing discretionary capex spend.

And optimizing working capital.

I know Aviations decremental margin through this pandemic is top of mind for investors and currently have touched on the main dynamics impacting our margins in the quarter.

While we expect our commercial revenues and profits will continue to be down in the second quarter, our expectations Arden. If the cost actions were undertaking will improve decremental margins in the back half of the year.

While there are many uncertainties I expect we will exit the year with a much lower decremental margin than what you saw in the first quarter. So make no mistake driving improvement here is our number one focus.

As we think about the full year, we're tracking travel restrictions carrier passenger behavior.

Disease countermeasures and freight demand all of which will impact aircraft departures and revenue passenger kilometers.

Well, we're seeing an unprecedented decline in 2020, we're taking action and David in the team are working proactively with our customers to navigate through this crisis.

So spending a little more time on commercial services, which represented $3.3 billion of revenue in the first quarter.

Let's go to slide 10, as you can see on the left side departures across the full industry were strong in the first quarter before rapidly declining in mid March.

As we look at at this week focused on the GE and CFM leap global departures are down approximately 75%.

Roughly 60% at the CFM Leap is park today.

In line with this we're also seeing significant headwinds and global shop visits which were down low double digits in the first quarter is airlines to for short term maintenance and we expect this trend gets worse before it gets better with some potential will moderate in the latter half of the year, depending on the variables just outline.

Based on what we're seeing through the month in April in the second quarter, we're seeing shop visits down roughly 60% and she has a billings down roughly 50%.

Additionally, we expect the significant reduction in utilization is likely to continue to pressure our CFA margins.

That said when the aviation industry recovers and it will recover over time, she is well positioned with the largest and youngest installed base of all engine manufacturers.

Additionally, roughly 62% of Archie CFM fleet has she has seen one shop visit or less and this will generate demand upon recovery.

We have more narrow bodies that are 10 years or younger than it then the narrow body installed base of the rest of the industry.

And when we see a pickup in air travel demand, we expect narrow bodies will recover most quickly.

Overall, it was a challenging quarter and we're expecting additional pressure here in the second.

But our cost Ashley will alleviate some of the pressure in the second half of 2020.

Moving to commercial engines, which represented $1.5 billion you run into first quarter.

In light of Cobot 19, Airframers are producing at a lower rate.

Based on what we're seeing through the month of April in the second quarter, we see installed engines down roughly 45% spare engines down roughly 60% year on year.

Attributable to the delivery deferrals. In addition to the already planned lower production rate on the 737 Max.

In the near term or Rightsizing production capacity and actively managing the supply base.

We have very strong relationships with the air framers and an attractive value proposition as evidenced by a multiyear backlog.

As you'll see on the right we have strong positions sole source on two of the biggest new engine entrance and 65% win rate on the other.

While we acknowledge there's pressure on near term demand for new aircraft. These steps demonstrate the customers see the value of GE technology.

We're taking the right actions to be well position for the post pandemic world.

Moving to healthcare, which consists of health care systems and pdx.

In the second quarter to date, we're seeing increased demand for vital medical equipment, and the diagnosis and treatment of cobot 19 within health care systems.

Now these product orders, including ventilators have increased one and a half to two times versus pre pandemic levels.

But at the same time, we're seeing reduced demand for other diagnostic products at certain procedures are deferred or canceled around the world to be clear. These other diagnostics are still a central and often associated with saving lives in areas, including oncology and cardiology.

But are currently de prioritized.

Pdx through similar story. This is a high margin. This is made up of contracts agents and nuclear tracers associated with procedures that are being deferred or canceled right now.

Several HCS product lines and most of Pbxs down as much is 50% versus pre pandemic levels.

While these dynamics varied by country, there appears to be a pattern emerging as geography is experience different stages of the virus.

Taking China for example, as hospitals come back online.

We're seeing a ramp in previously deferred procedures and increased demand for our equipment and consumables.

Healthcare is accelerating its planned transformation weeks to expand margins post biopharma by reducing head count fixed costs discretionary spend and marketing spend prioritizing R&D deferring capex and optimizing working capital.

Looking forward were most focused on the following indicators for health care hospital admission and occupancy rates and increase in non coded 19 procedures changes in hospital Capex budgets government spending on health care broadly.

And development of Kogan 19 tasks treatments in vaccines.

Based on our experience in China and the market in April we expect to be down in the second quarter with potential recovery afterwards.

Coping 19 has highlighted the need to build and truly invest and and scale, a new digitized infrastructure and quickly.

We're committed to our investments in our digital Edison platform and solutions like Bureau, virtual care solution.

Which allows one clinician to remotely view numerous ventilated patients simultaneously, helping to expand their capacity, while reducing the risk of exposure.

As our digital health care journey continues with the center of an ecosystem striving for precision health.

I'm very proud to work our team is doing to combat coated 90.

Moving to power on slide on slide 13.

We'll talk to the current trending in the second quarter to date and dynamics it gas power and power portfolio.

Starting with gas power equipment, while we're monitoring energy supply chain disruptions as of today, we still see a path to 45 to 50 gas turbine deliveries this year.

But our orders profile and therefore cash down payments were several hundred million dollars are likely weaker due to IP pressures in the U.S. and Mexico is we expect that deal financing will become harder through the year.

Additionally, with oil price pressure impacting middle East add as I say investment.

Including demand for new LNG, we are expecting a longer road tool normalization.

Ultimately, we're sticking to our strategy of securing a lower risk margin accretive backlog.

With disciplined execution.

In services approximately 20% a planned outages are shifting from the first half of this year due to Coca 19 field labor constraints.

We're also seeing pressure on upgrades, primarily in the middle East were low oil prices are impacting customer budgets.

We are seeing gas turbine utilization in the U.S. up mid single digits due to low gas prices and the ship from coal, but utilization globally is down low double digits due to lower electricity demand.

We then power portfolio, our Steve businesses most impacted.

Factory closures pressured our steam operations, including one facility and move Hot which was closed for approximately eight weeks in the first quarter.

Today, we're backup to more than 70% of capacity.

The global supply chain has also been disrupted by the shutdown it in India driven by government restrictions.

Overall, we're seeing about 30% of outages shift from the first half of this year to the second half with another 10% to 15% pushing.

Into next year.

Our power businesses are taking several measures to offset these pressures in the first quarter, we reduced head count by 700.

Notified approximately 1300 contractors implemented a hiring freeze.

And in line with the demand profile, we're taking even further actions.

This will serve to reduce fixed cost in 2020 and drive benefits in 2021.

Looking forward, we're tracking a number of items, including timing of our gas turbine new order closure service outages in volume.

Elevation is the energy mix and fuel prices are impacting each region differently supplier impacts and project execution billing milestones and customer collections.

We're targeting to have our accelerated cost out measures drive organic margin expansion.

Despite these demand changes.

Moving to slide 14 on renewables.

There was a limited impact of code to 19 in the first quarter and are disappointing results continue to be largely about improving execution.

As we've said, we think about renewables and three distinct operating pools.

Starting with onshore wind, while we continued to deliver at record levels in the Americas.

We are seeing supply chain disruptions at our LM wind facilities, and we're monitoring key commercial milestones, such as permitting and financing, which could potentially cost timing delays.

In offshore wind certification for our industry, leading turban the whole yacht acts remains on track.

We're also and plan to start delivering on our 80 unit.

Six megawatt commitments to eat yet.

After completion of this project in 2021, we expect to start shifting production to the Hollywood X.

We're also monitoring financial closure of 2020 deals.

Great and hydro our two turnarounds.

Our impacted by supply chain disruptions with over half of our grid facilities now operating below full capacity.

And a grid automation were also impacted by lower.

Book to Bill order conversion.

[noise] across all three of these pools were increasing cost out and restructuring and we've identified several hundred million dollars of additional actions.

Longer term, a lower cost structure will benefit renewables.

Relating to the global supply chain, we're focused on the safe reopening of our plants globally, and then optimizing the workforce implant load levels.

Well before we were expecting a larger impact from cobot 19 in the second quarter and by business, We're tracking 20, and 21 demand impact and progress collections and potential sites. It weighs in onshore wind.

The risk of financing delays associated with deals at offshore.

Project site delays at grid and hydro and the backlog.

At grid.

On slide 15 within GE capital Archie Cas insurance businesses are where we are feeling the largest impacts so I'll keep my comments focus there.

First she Cas is better positioned today than in previous downturns with better asset quality less customer concentration and more geographic diversity.

That said, we're preparing for elevated repossessions and redeployments as well as lease restructurings and we've had approximately 80% of our customers seek short term deferrals.

As you may have seen we agree with going on a rebalancing of our 77 match order book.

Second at insurance market in rate volatility is impacting the current value of our investment portfolio and reinvestment yields.

Therefore were.

Deploying capital to capture market dislocation investment opportunities, we're closely monitoring how this volatility will impact insurance this year.

And similar to the industrial segments were implementing incremental costs and cash actions looking forward, we continue to expect higher impairments and lower asset sales that GE cast and insurance.

Our seasoned teams are working closely with our customers to navigate through this period.

So to close our priorities are clear we rapidly localized our team in the face of Cobot 19, with our top priority being the health and safety of our employees.

And overall the priorities we reviewed with you at the outlook call remain intact.

We're facing into our near term realities, while continuing to manage GE for the long term.

When the world is facing the worst pandemic in a century, our team is rising to the challenge with humility.

Transparency and focus.

We continue to deliver value for our customers.

Enabling air carriers to transport essential goods supplying vital healthcare equipment and keeping the white barn.

And while there are many unknowns there will be another side.

Claims will fly again healthcare will normalize and modernize.

And the world still needs more efficient resilient energy.

At the same time, we're embracing this new reality, we're redefining winning and we're executing our plan the cost and cash actions. We've taken you through this morning, our major resolved.

These moves will ultimately allowed us to accelerate our multiyear transformation to make GE, a stronger nimbler and more valuable company.

And I'm confident that GE will emerge stronger.

With that.

Let's go to questions.

Great top before we open the line I'd ask everyone into Q to consider your fellow analysts again and ask one question in a follow up so we can get to as many people as possible branded can you. Please open the line.

Yes. Thank you Sir we'll now begin the question and answer session. If you have a question. Please press star one that your telephone keypad you feel it could be removed from the Q. Please press the pound side or the Heskey.

It's going to speakerphone. Please pick up your headset first before dialing once again if you asked a question. Please press star one under telephone keypad.

And from vertical research, we have Jeff Sprague. Please go ahead.

Thank you good morning, everyone hope everyone as well thanks for all the the great 40, Jeff.

Good morning.

I was hoping you could provide a little bit of color on how you. A you know kind of view the kind of the asset quality of the you know the contractual service agreements and the like right. There's a lot of assets. There obviously, there's at least a temporary impairment of cash flows how does that test work have you.

Done it yet and are are you close that any particular threshold there that we should be thinking about.

Jeff I think if if we look at.

The the service backlog.

Broadly.

Just under 325 billion for the company.

The vast majority that 234 billion is in aviation I suspect that that's where you're most focused we go through those.

Those backlog reviews in the CFA.

Reviews on a regular basis.

What we've done here over the last.

Call it the west seven eight weeks is really.

Titan and Quicken the review process that we do with the the businesses both.

At aviation and at GE Cats, what we're trying to do is make sure we've got the latest.

And.

If you will most.

[noise] most accurate information possible.

With respect to customer risk given given everything that's going on so we do that on a regular basis, we did that at the at the ended the first quarter in in closing much as we do every quarter clearly we've got a we've got a fluid.

Situation and I think.

The the modest charges that we took.

The modest changes in the first quarter clearly are going to play out as we go through the course of the year, we can't really scope that where you today.

If you look at the FSA book in Aviation for example.

As we went through the the mechanics of the future billings the future costs related to those billings.

Based on the information to time it was really just a 100.100 billion dollar.

Adjustment noncash of course, which is why you see a little bit of the earnings cash a dynamic.

Certainly as we go forward, we're going to be updating.

Those.

Those adjustments and again, we would expect that we would see more of that given what the airlines are doing with with their planes, but I think it's important keep in mind again. These these are 10 to 15 year agreements as you know and those adjustments or take taken in the context.

Back to.

Particularly extended time period.

Great. Thanks for that and just as a follow up if I could I.

I know you don't want to get real precise on guidance, but you are.

Putting us to a further decline in cash flow in Q2, which isn't surprising quite quite frankly, but.

Could you bracket that at all for US what we should expect for for Q2, and a you know any high level thoughts on how the year plays out from the cash standpoint.

Yes, Jeff I think that we we took guidance off the table a few weeks backend.

Didnt want to take it.

An attempt at at framing formal guidance here today in light of all the this flu and all that it's still evolving here I think the tack. We took was really to try to do share as much with you as we possibly could in terms of.

The April detailed business by business.

And acknowledge that we're going to see a a more challenging second quarter here given the full impact of at cobot into like.

But beyond that I think that that's really where we are we know we've got to get to work on the cost and the cash actions. That's why you see a doubling that activity in aviation stepping it up elsewhere are around the company. So the 2 billion of cost with rebuilding a cash will clearly help us.

Later on in the year is those those actions.

Take I take root, but today I think that's really what we're.

That's what we know and that's what we're comfortable sharing.

Great. Thanks Best of luck Larry Thanks.

From Morgan Stanley We focus whiskey. Please go ahead.

Josh Your line is open compute.

Josh you might be opportunity there.

Why do we.

Brendan much about let's move on to come back to Josh. Okay. Sure. Next question, we have from Bank of America, We have Andrew. Please go ahead.

Yes, good morning.

Can you hear me Andrew.

Yes, Andrew.

Yes. Good question here you want.

Okay, so much and.

Good luck to everybody.

So run rate might 60% in terms of shop visits fix I don't see assays do you think you continue to trend that this slow in the second quarter or is there more downside.

Andrew the I think.

You're referring to the page nine in the slide deck, Yeah that is what what we're seeing here.

Yes, I think this is what we're out what we're seeing right now right and given.

Given what the carriers have had said publicly what they're doing we think these are Ah. These are good likely.

Near end run rates to share with you we again, we're not.

Trying to offer up a definitive view as to the next several quarters.

But this is this is what we're seeing right now in the second quarter for sure.

And my follow up question on Sarah engine sales I think.

Minus 60%.

Have we lost fees or will these come back a one to situation normalizes, maybe you can give us some sort of framework how to think about spare engine demand over the next couple of years. Thanks, So much.

Andrew we were we were ramping.

Spares with with both.

The the leap one and the leap won't be as the narrow body market was taking off.

Typical early in the life of an engine activity.

We're clearly seeing that.

Softened.

Necessarily going to zero.

As preparations are being made for.

The returned to service of the Max right.

I don't think that that that opportunity is lost but I think like much of what we're seeing an aviation broadly it will be a it will be pushed out repeaters and again I don't think we're taking a definitive view as to what you're what quarter things get back to if you will a normalized 2019 level, but we recognize.

Hi, guys.

The discussion out there about this being a multiyear recovery gradual slow.

We're embracing that reality and that applies.

Really across the portfolio both.

On the OE side.

As well as the aftermarket spares included.

Thank you very much while the detailing stay safe. Thank you.

[noise] flag advisories there. Thank you.

From biggest research we have Scott Davis. Please go ahead.

Hey, good morning, guys and welcome Carolina.

Thank you.

Oh that Larry.

Good morning, Larry.

Anyway to think about the cost actions.

As it relates to kind of structural versus more kind of pandemic short term related.

Sure well I wish I would say Scott as you well no.

That wouldn't we're in a we're in a mode. Like this you are.

You're moving as quickly as you possibly can.

Almost anywhere that you can so if you look at what we've announced that aviation the doubling of those activities today the broadening.

Across the company.

If you look at the is the tally today there is a decidedly short term bias there.

The Carolina and I are going to be working with the Ceos over the coming weeks to transition to a more permanent.

Action right if you look at.

Well, we did in aviation for example for example in terms of the temporary lack of works.

That was a way to quickly adjust our cost structure in that business on a variable basis to these shockingly fast changes.

In demand.

You might categorize that as temporary we need to work through.

The changes on a more permanent bases that are required and in light of the.

The length of the recovery that we're looking yet so.

We have confidence in these in these numbers that were sharing today, the 2 billion of costs, the 3 billion of cash.

There's a bit of a tactical bias today, just given how fresh this is but we will be leading into were making more of them permanent recognizing that the end of the day, there will be a bit of a mix.

<unk> be it head count related discretionary spend.

On the cost side. In addition to some of the working capital and certainly the Capex reduction to care leaner referenced the 25% reduction.

Sure on year, so a lot going on.

And by no means is this.

These headlines today the.

Again, it's very much at work in progress.

Okay. That's helpful area.

You know that the $20 billion kind of.

Camtek pretty much about perfect timing, but.

Does that money just sit on the balance this after sit on the balance sheet pretty much as is for the for the year can you or is it just such a big number you can start to parse some of it out to.

Thank you in terms of what are going down some of the.

That that you can.

You can manage.

Well, we it did come at a.

Yes, it a good time.

Theres No question, that's why we put the emphasis in the Biopharma.

Set up.

On on certainty right, we wanted to take the market risk off the table relative to thinking through the the health care options.

Clearly not anything.

Want to add relative to kind of managing liquidity versus leverage right here.

I think.

Yes.

I think if it's important to acknowledge that the blended different now competitive before colvin.

So important for us.

Of course leverage is important but liquidity.

Since.

We ended the quarter with what the 7 billion cash right.

So we get to convert over 10 billion.

Capital long term debt maturities now to 21.

Actually after the epic access we're down to 31 billion of maturities, which went into into I'm almost all investing in capital.

I would also say.

We expect to have around 20 billion in total credit line going forward, that's really language appetite to have the new.

15 billion. So yes, yes that I mentioned on time.

Maybe 20 no credit line.

I think winter so definitely we really entitlements on high level of cash I would like to maximize flexibility.

That's why we're taking this access also to be Wisco balance. It then physically prudent came on its own equated to induce very challenging external environment in time.

That makes sense and thank you and good luck to you guys.

Thank you.

Thanks, Scott well.

And let's try just brokers once keegan from Morgan Stanley. Please go ahead Sir.

Hi, guys can you hear me this time.

Yes, yes.

Clearly Josh good morning.

Awesome.

And hope everyone is as well that go earlier comments, Larry can you just give us a sense and I know you guys have data going back yards and aviation, how the impact of retirements and Cannibalizations.

Now to make more of a U shape versus you know what the air traffic May look like is is there a natural lag between when folks start flying again and win win shop visits can happen just as a function of kind of using up some of the run time on otherwise idled assets.

Well Josh.

Certainly we have we revisited the history. The team is that is well burst again and what we've seen in years past.

Not sure we've we've seen anything.

Kind of on par with that with this but there's no question that there's going to be a bias on the part of some as some of these fleet reductions play out to retire some of the older aircraft.

And that will.

Factor into the to the aftermarket much like some of the dynamics around green time, and how you're in the short term.

Folks try to preserve cash carriers or try to preserve cash in a in their business. So I'm not sure if there isn't necessarily.

An exact model that captures what all the carriers in aggregate are going to do here a model that offers great precision I think we do know that this.

The combination these factors, it's going to create pressure for us.

For us here in the short term.

I think what's most important for our business really is cycles much more so than rep.

Revenue passenger miles.

And as we see schedules come back.

As we work our way through the pandemic that will.

That will put us back on I think better footing, but here in the short term I think were knowledge and that we're going to see shop visits and see if they billing.

Take on some real pressure due to the downturn.

Understood. Thanks, I'll leave it there.

[noise] from JP Morgan, we have Steve Tusa. Please thanks, Josh.

Hey, guys good morning.

Hey, Steve Good morning.

In in a in early March you guys had that slide that showed.

Two to 4 billion in free cash flow guidance or just obviously off the table, but you also talked about things growing and 21 22 and it off that kind of 3 billion dollar base I think.

Most research and.

Numbers I saw we're kind of in that you know $6 billion range of free cash flows kind of growth off of that level are we still like is the already out your numbers I'm still at all legit or is that you know or are you kind of withdrawing that long term outlook as well.

Steve I think we have admittedly been focused on taking the right actions both the cost the cash the balance sheet actions here in the short term.

Okay. So this this unprecedented died pandemic.

We've taken guidance off for the year, we're not putting it back on today just given the.

Given the undue on uncertainty of it all right. So I don't.

I don't think we're trying to get out any further than that.

I appreciate the question, but I think for purposes of today, we're really just trying to.

The frame for folks, what we're saying, but that said however, long it takes us to work through this I mean, we feel very good about our ability to come out stronger and get back on a on a positive.

Cash flow growth trajectory.

Got it early to anything you would add to that.

No I think it's important to to acknowledge that by taking out cost now and part of it being structure that keeps us sort of a friend of mitigating the decrementals that helps.

Moving the incremental.

The outer year, something that will depend on the recovery on the industrial side. So that's.

I would say well, it's impossible to speak to that.

Right and I guess, how much on that structurally off site C.

Yeah good.

Yes, I'm just just one other point I think worth mentioning about I think what were knowledge in here is that as this is played out in March and what we're seeing already at April read it really is hitting.

Hitting us from mix mix perspective hard.

Our highest margin businesses are really feeling it here I would think that on the on the recovery.

We would see.

We would see it swing the other way when we get back.

And come off a bottom we should have positive mix effect.

It really across the across the board, particularly at aviation and health care.

Your your second question, Steve was relative to the cost actions and how much permanent how much.

Not permanent.

Yeah, I know I guess, how much is that going to cost you I mean, like you know to come up with $2 billion to $3 billion of.

But in cash you know you've done you caught your restructuring last year pretty significantly needed a couple hundred million in the first quarter.

I mean, most companies kind of one for one what how much of this stuff going to cost due this year on a cash basis.

Yeah, I think what we have said.

Previously we were going to be down off of last year from a from an expense and from a cash perspective I think we're we're.

Probably going to end up more or less in line.

Right keep in mind that some of the cost actions like furloughs.

Don't carry a restructuring.

Charge with that right.

Because they aren't permanent so part of what we're trying to do a squeeze out some of the temporary costs.

But all the while if we can.

We can make more structural moves we want to make sure we've got room to do that but I'd say right now assume that it.

The relatively flat year on year, but it's currently not indicated in her remarks.

We want to try to do more if we can.

Great all right. Thanks, a lot that best of luck is.

Thanks, Dave Yes, we have markets that are Blair. Please go ahead.

Hi, Good morning, Larry currently on the let me maybe following up on the on the market good morning.

Hey, good morning within the year. So in your 10-Q you referenced.

The out some numbers of 48% our PK reduction.

It is and I know a bcf flight dollars, an art teekays on two different stories, but it's not sort of a kind of scenario that you playing through internally and I'm just trying to get a thin flip that would mean, if you look at all sort of like 19.

Additional cash as a baseline sort of like where you know on on that type of scenario, we could end up particularly.

Looking out sort of what you've mentioned in your prepared remarks that you have I think 62% dose of engine still ahead offshore we did one which arguably all the engine that on the narrow bodies coming back first because that probably the youngest.

Fungus and the fleet right right now, it's time to get a thin, but within the year, how you're thinking about though.

Well I think that.

Given what we what we highlighted relative to the April experience and the near term projection of that.

There's no question that we're going to continue to see the pressure.

On the on cash at aviation that we've seen.

Here of late right and that will be our.

Undoubtedly our biggest headwind.

Not sure but.

The shop it'd be hard sort of fit the number that you, but you said, but did you do with sort of internal income or stress tests around.

Where you could end up I thought it that's just something that you say, it's too early to come.

No no no theres plant Theres plenty of planning for.

Again, a and extended.

Slowdown here, we're embracing this reality to the fullest extent possible, we're not expecting this to bounce back in the near term. So we flag in the queue. The out of numbers. We also reference others you see it in our own departure David here in April right, we are where we are.

Are way down that has a direct the and the shop visits.

They billing and the like so we're adapting to this new environment.

Confident that it will recover so were markets were simply not trying to.

Assume that the pressure abate anytime soon.

The the cost in the cash actions that we're taking.

Sure. Okay, I appreciate that and maybe a follow up quickly on the capital side do you anticipate.

Any change in the in the capital support therefore for insurance in particular, you you've referenced that little bit in the prepared remarks, I think 2 billion, it's sort of the current number.

Are you thinking about that at the moment.

On the parents support to Capitan, yes.

Let's let's take a step back to them so.

91.

Appetite in Tucson.

A 4 billion.

The estimate for for this year is too big.

On the insurance funding.

And those 2 billion.

No that significantly lower than.

Before.

But that's APAC willing to support roughly in line with.

With some valuable I still opening that depends on capital itself right to just kept in oneq.

The other two.

Capital ending assets liquidity level, but those ticket, but to be and it looks now.

No it doesn't say going cortland anticipating a follow up.

We do continue to.

Other funding.

And that will be against what combination.

Hey, captain itself at the current liquidity and that's it.

And on top of that possible tufting conditions Council.

Thank you.

[noise] from Cowen and company, we ask what Tom caught up. Please go ahead.

Yes. Thank you good morning, guys.

Good morning question.

Two questions more so Ed at aviation that sounds like you guys acknowledge that the way off.

The spares business, the aftermarket $15 billion commercial aftermarket business will lag ASM growth because of.

You know a younger fleet emerging you know a surge of you serviceable material in the like part outs.

Obviously, lower spares provisioning as the OE rates come down 30% to 50% I.

I guess first question is when do you anticipate.

Aviation free cash flow.

Getting to breakeven is it even possible before calendar 22.

In that and type of environment, and then I have a follow up.

I'm not.

Not sure we would by end of the premise per se right I mean.

We are cycles business.

Much more so.

That than any other indicator and those cycles are gonna have to come back.

Before the passengers do.

Uh huh.

As you indicated the age of the fleet will will help us over time, there could be some short term headwinds.

But we will let we'll see we'll see how that plays out.

I think.

And what we're acknowledging here's what we've been hit from a free cash perspective.

In our.

Our biggest invest cash generator at aviation.

But we're really not getting into.

Much more much more in terms of he.

But the free cash.

Forecasts on on a multiyear basis, it's just too soon there's just too many.

Moving pieces for us too.

To be that forward leaning at this point, we wish we could be at just there's just not where we are.

Okay, and just a follow up you know obviously 2020 is a tough year, we're going to have some cash burn 2021 unclear, but certainly doesn't seem like an aviation we're going to have a strong recovery.

Any.

So as we emerge from this we're going to have you know.

More leverage I guess the question is you guys have made some asset sales to de leverage what else. Besides cost reduction can you do.

To get the balance sheet better faster or is there any other things that you guys are exploring whether you might explore.

It's different than what you've done over the past year.

Thank you.

Well I would maybe I'm not sure I'd say that there's a lot that is.

Police Carolina.

Well I was I was going to say that tend to think that would drive I, let's say a couple of yes.

Yes, well I would just I would just say it at a high level.

We are committed.

To our deleveraging target, but less than two and a half times on the industrial side and I think you've seen us make a lot of progress year to date, which I hope underscores.

The seriousness of that objective both on the GE side right I get 7 billion.

Debt reductions in the quarter and the capital he gets up to 10.

On a year to date basis, given given some of the things we did in April clearly, it's going to take us Oh.

A while longer here the hit those targets like I suspect milk most companies.

But in terms of doing anything new or different they were going to continue to try to run. These businesses as best we can be as disciplined as we can on the capital front.

Beat the smart and thoughtful relative to some of the other obligations like like pension as you've seen us relative to the plan design and some of the settlement options. So I'm not sure there necessarily new place per se.

But we will continue to look at it every and every option available. They continue to strengthen the company strengthen the balance sheet bring those leverage levels down in the face of of Cobot 19.

Currently I'm, sorry, I jumped in there anything to add there.

I would just on the to the leverage comment also the liquidity that at times like this you know you do look at the liquidity and I think it's important to say that.

We will maintain high level cost to maximize the flexibility.

I have been the de risking activity stick with it.

To sort of push out the depth and further so.

Absolutely.

Thank you.

Yeah and I.

I think that admit it's just important for us all to remember we ended the quarter, but 47 billion of liquidity.

On the back of the Biopharma action and some of the other things that we have done so we'll continue to be nimble and and flexible.

Mindful of our obligation than our reality.

Okay.

From Barclays, We have Julian Mitchell. Please go ahead.

Hi, good morning.

Maybe just a question morning, Julien good morning, and maybe just the first question around the.

The working capital dynamics in the free cash flow at aviation.

I guess, yeah, there's a lot of industrial businesses, where when you get this rapid sales down draw you get a working capital cash offset to an extent and then it reverses whenever the sales come back.

Could you just update us on how you see the working capital cash impact to GE aviation sort of in the early stages now in this downturn.

What you would expect to happen to working capital when things recover and if there isn't any major difference on the cash dynamics of the power by the hour type service relative to the AD hoc spares activity at aviation.

It Julian I would say.

[music].

Yeah with respect to working capital.

I think our primary challenge is really inventory at aviation right. We we came into this year, knowing we were gonna have to adjust.

To a different schedule.

With the Max chasing the step up at Airbus with the three Twentyneo.

While dealing with a good bit of of past due on the commercial side, both both though we add.

Aftermarket.

While having pretty good military demand to to contend with that all gets reset here and one of the real pressured we saw promote from a cash flow perspective wasn't inventory at aviation in in the quarter. So that that's where we're going to be most focused trying to make sure that.

We reduced the delinquencies adjust to the news production schedules, but lower aftermarket requirements.

While continuing to take care of a military business. It that's that's a complex supply chain undertaking.

But the team is you can imagine is.

Keenly focused on using some of the lean tools working with our supply base.

To make sure that we not only take costs out of the business, but bring those inventory levels down.

In light of current current demand.

But should we expect so I guess I understand sorry, he joined US yes.

The second part of your question I may have missed that.

Well, yes, it was regulator and I guess you know at aviation you have the you have the drop in EBIT dollar in a downturn than the recovery in EBITDA in the part of the up I was just trying to understand on books and capital is that cash impact.

Counter cyclical or is it pro cyclical so are you getting good working capital outflows.

Through the downturn as well as the EBITDA decline.

No.

Stand the the the high level dynamic there that you're alluding to I think right now the the simple reality at aviation given the pressures in the cross currency is that it is a negative and we need to work to improve it how much of a a tailwind could it be.

Got it at this point in the cycle.

I think it's too early to tell we've we've got to get on the improvement Pap first joined to be able to.

Take that a potential and deliberate in the financials as a reality.

Thank you and then my second question was just around the the operational issues. So I think it sounds like the cost out tailwind should build through the year, but in Q1, you had some operational issues in power on the on the service side.

The decrease rentals, even with the fixed cost down 16% renewables the margins were down despite a big revenue increase so I guess, what's the conviction that operational inefficiencies, we'll know swallow up a lot of these cost savings over the balance the year.

Well I think you have to take it business by business right.

If you look at what happened in power.

Clearly the the push out.

Hi customers because of their own site restrictions and by US on the back of the travel restrictions really pushed a lot of high margin.

Revenue out of the quarter in probably out of the first half.

That was on top of.

Some cost.

Pressures of our own, making which we need to we need to improve upon but I think in power.

I believe that the team is doing a very nice job working off the.

The so called inheritance tax is driving real cost.

Improvements you see that my head count reductions here in the first quarter.

And as we get to a more normalized service environment I think you'll continue to see that that turnaround continue to take light I think it renewables jewelry and it's a different dynamic.

Yes, we had.

Phenomenal revenue growth in the quarter doubled the onshore.

Turban deliveries here in the U.S. got a little bit of a little bit better priced about a point of price, which is encouraging to see.

But.

It is by nature, a very low gross margin business. So the growth isn't high calorie. Unfortunately, we had a.

Few what we figure one off but they're not one offs until they go away permanently.

Cost and execution issues, all the while the the turnarounds and hydro and grid or.

I think moving forward, but it's early days and they have.

A number of inheritance tax it will take a few years too to work through so I I think the cost actions that we have talking about today will accelerate those turnarounds in power and renewables, they're dealing with different dynamics in their respective businesses.

And that's really why I think I have that the confidence to say that you should expect the decremental margins sequentially.

To improve the restructuring and the cost actions should.

It should present themselves.

In in improved Decrementals in the back half, but we've got work to do to to make that make that happen.

Great. Thank you.

[noise] from Wolfe Research, we have Nigel Coe. Please go ahead. Thanks Julien.

Thanks, Good morning, everyone.

And coming in a great to see on board.

So look we appreciate a little color and slides on the best additional color and then the in the Q.

So it's not what is it now a base case that industrial free cash flow will be negative and maybe just dress that risk of significance.

Cash burn this year.

Oh, you know is there enough on the kind of cost out on the working capital side, maybe mitigate some of that pressure on keeping does for free cash relatively steady.

Yeah, I think what.

I think what we're trying to.

To sharing this morning, Nigel is that you probably three things one we've been very we've been hit hard and fast here right in.

Some of our.

Most importantly highest margin businesses be at aviation in services, particularly.

Gas power services.

PD accident and health care.

We think that that.

Gets gets worse before it gets better, particularly here in the second quarter with a full a full effect, it's uncertain as to how things play out from up from here.

We're going to acknowledge that uncertainty hence the the.

The pulling up the guide, but we're not going to sit back and hope that it all passes were not going to take the view that we've got a sharp be balanced calming, hence the the 2 billion of cost actions, we've talked about and the $3 billion of cash actions, we're going to do everything.

We possibly can.

To control our destiny here without impairing the the long term value in the long term trajectory of our company.

So I.

We're telling you what we know today, we wish we we knew more but that is really the.

The state of play right now and the approach the headset that we're taking to it.

Okay I appreciate that everything and then I think one of the when the real highlights for the quarter was the underlying strength the healthcare margins ex even ex biopharma, especially given some headwinds facing the so.

Within strength in small equipments and pressure in big on how does not next look though when you. When you look at the the mix on small a patient monitoring equipment et cetera. This is the big on how does that give a mix play out to the margins.

Well, we we certainly.

I think the.

The key thing to keep in mind Nigel is.

The big Iron certainly got hit.

But the lower.

Hi.

Lower ticket, both the lower price points be a patient monitors ventilators and the like certainly got quite quite a boost but it's a small it's a small part of the.

Of the business.

So there was a little bit of mix there.

But but not a lot it was really more a function of frankly of the team doing a nice job more broadly.

Recognizing that absent bio pharma.

We needed to tend to the core cost structure in all its form.

In the Ace, Yes business right, we've been growing health care.

Biopharma, leading the way we've got some good margin support from that business. The last several years well now as we think about the 17 billion dollar core the teams really I think.

Put their sites the last couple of quarters on growing that business growing it with accretive margins and it's really the cumulative effect that I think you see a bit here in the first quarter before we we got hit we got hit a little bit later not as much.

You'll see more that unfortunately here in the second quarter, but I think you've got to team who thinks that like many other medtech companies they grow mid or low to mid single digits overtime and put more digital into the mix.

Better costs that should give us the opportunity to grow with accretive margins.

Along the lines of what cure and laid out in December and I have no less conviction about their ability to do that today than than we did when we made that presentation again mindful that we've got some gyrations here in that in the near term to deal with right. Okay. Thanks. Good luck.

Okay.

Thanks, Nigel Hey, Thanks, Nigel we are at the bottom of the hour so.

Branded worth about 20 hours. So we can just take one more question.

Sure from RBC capital markets, we have Deane Dray. Please go ahead.

Thank you good morning, everyone wishing everyone good health and add my welcome to Carolina.

Thank you.

Hey, just wondering Dave good morning, just two questions both aviation.

Why discussion about structural cost out and Larry be interested in how have you balance the.

The structural cost out in aviation with reps and and balancing the risks and furloughs versus how you might be compromising the ability to bounce back.

When it does ramp back up so that's the first question and then the second one just to make sure I heard it correctly. There did you quantify the leap cancellations in the quarter I know there's delivery deferrals. Our experience in 2008 was that you did not see many outright engine cancellations because customers.

Would lose that nonrefundable deposit so what's the expectation here in terms of engine cancellations. That's it for me. Thank you.

That being maybe I'll take the first part of AD and perhaps currently the can can take the second.

I think we are mindful.

Ever mindful that there will be a recovery right and we want to be well positioned for its going to be very good business for GE fruits for.

Decades.

But I think we are.

Really trying to again embrace our reality.

And take the the cost actions in the aftermarket business and more broadly at aviation mindful that we've got a period of time here.

Of an unknown duration, but it's not going to be measured in months right, where that business is going to be under considerable pressure.

So after a period of time as is the aftermarket.

Has its grown as it has west the last decade.

He's going to give us an opportunity to add to rethink the rig to consolidate.

All the while.

Mindful of our obligations to customers.

The nature of how the footprint has changed.

The changes that are probably still still still coming so there there are number of variables.

It's very much show a work in progress as well, but I think we've got line of sight to build on some of the temporary reaction.

To a detailed permanent.

Action to make sure that we have a lean cost structure with adequate capacity to come out of the downturn here well position to perform both for customers and for investors.

Thank you I'll now turn it back to Steve would occur for closing remarks.

Well doing but also the.

Question on.

Yes. Good question go ahead carefully I love it.

Well go ahead Kevin.

Yeah, you're right because I actually mentioned back in line.

It's dynamic in our backlog, which was flat sequentially and up 22% versus prior year that did include roughly 201 billion or the transmission in the quarter.

Well I was on the pro thus.

A very small so far.

But on top of that's also sold to the Cas rightfully on Zika Tetlow six to nine Icap in April so back when they were affected in the second quarter at isn't backlog.

Great. Thanks, everybody I know I know, it's a long call and a busy day. So if you need more just reach out to us and best of luck.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.