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Subject: Executive Update
Date: Wed, 25 Nov 92 12:57:53 EST
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11/25/92


TITLE Executive Update Aerospace Unit Sale Illustrates GE's Modus
Operandi

Conglomerate Willingly Severs Businesses That Don't Meet Its Cri-
teria Farrell Kramer


General Electric Co.'s announcement Monday that it will sell its
huge aerospace business to Martin Marietta Corp. for $3.05 bil-
lion surprised industry analysts.  But GE watchers say it was en-
tirely consistent with the company's overall management philoso-
phy.  The Fairfield, Conn.- based diversified industrial giant,
which traces its Management

history back to 1878 and Thomas Edison, has thrived in a period
when diversification has become a dirty word. Its concept has
been simple: stick with businesses that are tops in their fields.
That requires that management be willing to make the tough deci-
sions to divest businesses that are not performing up to par.
Emotionally, that can be quite wrenching.

GE, however, is renowned for its ability to make such decisions.
The sale of its aerospace business, which employs 37,000 and sup-
plies satellites, radar and sonar systems, communications systems
and other defense and aerospace systems, was just such a case.
General Electric had considered aerospace one of its 13 major
businesses, along with aircraft engines, broadcasting, electrical
distribution equipment, electric motors, financial services, in-
dustrial and power systems, information services, lighting,
locomotives, major appliances, medical systems and plastics.
"This merger is consistent with a belief central to GE management
strategy over the past decade: that businesses must be No. 1 or
No. 2 in their marketplace to succeed in the highly competitive
global arena, or have a way of getting there," John F. Welch,
GE's chairman and chief executive, said in a statement.  The sale
of the aerospace business, which generated 1991 revenue of more
than $6 billion, does represent something of a departure for GE.
As part of the transaction, GE will receive $1 billion in conver-
tible preferred stock in Bethesda, Md.-based Martin Marietta and
two seats on its board.  Thus, GE will keep a hand in the new de-
fense aerospace company, which is expected to generate annual
revenue of close to $11 billion.  Nevertheless, the aerospace
unit is being divested.  "I think their concern is the outlook
for the 1990s of the whole industry," said James E.
Peirce#m#cq#m#, an electrical equipment analyst at PNC Financial
Corp. of Pittsburgh.  "We've seen downsizing throughout the in-
dustry, and the outlook for government expenditures is poor at
best," he added. Peirce believes General Electric made the move
to avoid operating a major business in a downsizing industry.  GE
spokesman Bruce Bunch acknowledges the decision to seel the busi-
ness is related to the defense industry's prospects.  He adds
that the $2 billion or so in cash that General Electric will re-
ceive for the aerospace business can be used to bolster the No. 1
and No. 2 positions of other GE businesses.

General Electric's last divestiture of similar magnitude included
some similar themes. In July 1987, GE agreed to sell its consumer
electronics business to Thomson S.A.#m#cq#m#, the French elec-
tronics firm, for $800 million. The transaction also transferred
ownership of Thomson's medical equipment unit to GE.  While not
considered a GE core businesses, the consumer electronics unit
generated annual sales of more than $3 billion and employed
31,000.  The move made sense strategically because GE bolstered
its position in medical systems with the Thomson unit, and its
consumer electronics business made a good fit for Thomson.  "GE
has not hesitated in the past either to make acquisitions or to
divest businesses," said John E. Hilton, an analyst at New York-
based Argus Research Corp.  Solid management, sheer size, a
strong balance sheet and a top credit rating have given General
Electric's management the freedom to pursue that strategy, Hilton
says. Over the past decade, GE management has shown its toughness
time and time again.  A 1980s restructuring that eliminated both
excessive management layers and non-management positions, com-
bined with various divestitures, retirements and the like have
reduced GE's total employment to 275,000 today from 411,000 in
1981. Over that period, revenue has grown to $60.2 billion from
$27 billion.  GE executives are pushed hard to produce profits.
Those who fail, analysts say, often don't remain at the company
for long.  "Jack Welch is an outstanding manager," said Argus'
Hilton. "Where he sees cuts necessary, he makes cuts. . . .  "And
that's one of the reasons you don't see the management shake-ups,
the asset write-downs, the boardroom coups at General Electric,"
he added.

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