With so many terrible events that have happened this year, I don’t want to throw around the word tragedy lightly. Yet, that’s the only descriptor I have when I think about General Electric (NYSE:GE). A dumpster fire if there ever was one, GE stock was on a comeback trial in 2019. Of course, the novel coronavirus had other plans, placing the once proud industrial giant back in the doldrums.
As with other publicly traded companies, General Electric saw its equity value plummet sharply in March. But even with the advantage of small-number comparisons, the recovery in General Electric stock has been less than stellar, relative to many other traded assets. As if to heap more bad news on an already embattled organization, two Wall Street Journal reporters, Thomas Gryta and Ted Mann have released a tell-all book about GE’s failure in its digital initiatives.
Specifically, former General Electric CEO, Jeffrey Immelt, wanted the company to become a “top 10 software company.” Immelt had witnessed how organizations like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) had disrupted media. He did not want the same for GE’s core industrial businesses. Therefore, he pushed for an industrial Internet of Things platform called Predix.
Obviously, we’re in 2020 now so Immelt’s vision did not materialize. But as Gryta and Mann argue, the project was doomed from the beginning. Amazon and Microsoft (NASDAQ:MSFT) were already one-stop shops for corporate cloud computing needs. Thus, it didn’t make sense for General Electric to chase this sector so late in the game.
Perhaps, a more focalized effort would have better for Predix. Unfortunately for General Electric stock, the underlying company needs something to mitigate a potentially upcoming disaster.
GE Stock Must Contend with a Fundamental Collapse
In my last article about General Electric, I mentioned that the decline in air passenger volume represented a serious threat to General Electric stock. At the time, air travel volume was about 14% that of the year-ago level across all U.S. airports.
Of course, the percentage has roughly doubled today. On July 19, for example, the Transportation Security Administration screened 747,422 passengers. That’s 27.4% of the year-ago period’s volume. But based on comments from airliners, that’s nowhere near enough demand.
According to The Hill, Southwest Airlines (NYSE:LUV) warned employees that “passenger numbers need to triple by the end of the year to avoid layoffs.” The company has never laid off its employees before. Ominously, Southwest’s passenger numbers are down 73% from 2019.
I’m not here to pick on any one company. Rather, this demand shortfall is emblematic of the entire airliner industry. Certainly, the lack of speed in passenger recovery is worrisome for General Electric stock.
As you know, General Electric’s aviation business has been one of the few bright spots over the last several years. Plus, with our economy becoming further globalized, it was logical to assume that air transportation would become a big growth narrative, especially as developing nations became wealthier.
Sadly, the Covid-19 pandemic changed everything.
To be fair, airliners have resorted to creative measures to mitigate damages. Most notably, many companies converted their jetliners to accommodate cargo-only flights. As long as planes are flying, there will be demand for aircraft engines and maintenance services.
But the question is, will there be enough demand? With no real incentive to fly, I can’t imagine that the aviation business is viable. And then, we have another bothersome question – when will this crisis end?
Survivability Is a Concern
Like perhaps most of you, I tuned into the Chris Wallace interview with President Trump. I was seeking reassurance and to be frank, I’m not sure if I received that.
Now, I’m not one of those folks that blame Trump for everything. At this point, I think a measure of confidence exists in having leadership that you know rather than leadership that you don’t. Regarding this, I believe the President was fair in calling out former Vice President Joe Biden’s competency.
However, when it comes to managing the Covid-19 crisis, Trump gave a series of perplexing responses. It suggested that outside of BS charts that his own administration produces, Trump has lost control.
Again, I don’t necessarily blame him for that because let’s face it – there’s a lot of blame to hand out. But it must be harrowing for airline executives to hear that, because it suggests things are going to get worse before they get better. If that’s the case, you should probably punch out of General Electric stock whenever a good opportunity arises.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.