Shares of General Electric (GE -0.74%) traded down more than 5% on Monday after the company said it would cut 13,000 aviation jobs, five times more than the number of positions the company had previously announced it would trim. GE's stock is down considerably from its heyday, but it is getting harder by the day to see what is going to get the shares moving higher any time soon.
In a letter to employees Monday, GE vice chairman and head of GE Aviation David Joyce said the COVID-19 pandemic's impact on the airline business, and the subsequent fall-off in demand for new planes, was forcing the company to make deep cuts. The company had previously announced plans to cut its aviation workforce by about 10%, or about 2,600 positions, but it has become clear that further actions are needed.
"The deep contraction of commercial aviation is unprecedented, affecting every customer worldwide," Joyce said. "To protect our business, we have responded with difficult cost-cutting actions over the last two months. Unfortunately, more is required as we scale the business to the realities of our commercial market."
GE said last week its aviation unit was developing a plan to reduce costs by $1 billion in 2020. During its first-quarter earnings review, GE said that so far in the current quarter new engine installations are down 45%, and spare engine sales are down 60%.
General Electric has had a difficult run in recent years, weighed down by market-topping acquisitions and a huge debt load. The company showed signs of a recovery in 2019, but the shares are now down 44% year to date in 2020.
We knew heading into 2020 that GE had serious issues with its energy business and with other units, and still had work to do bringing down debt. Aviation was supposed to be a counterweight for those issues, providing earnings stability and free cash flow.
With aviation now moving from a tailwind to a headwind, GE's multi-year recovery process only looks more challenging. Given the issues there isn't much reason to buy into GE shares right now, even with the stock trading at just a fraction of what it was once worth.