Analysis: GE Aerospace wagers on 'black art' of castings to lock in jet engine supply

PARIS/CHICAGO, Sept 9 (Reuters) - GE Aerospace has moved to curb shortages of precision jet-engine parts and secure valuable technology by entering the exclusive circle of castings manufacturers through its $12 billion acquisition of Consolidated Precision Products.

The purchase of CPP—the world's third-largest maker of the metallic components essential for engine turbine blades—represents the latest step in a years-long initiative to reinforce aerospace supply chains.

GE Aerospace Chief Executive Larry Culp, announcing his largest deal since steering the turnaround and split of industrial conglomerate General Electric, described the added capacity as "mission-critical."

The transaction highlights a broader transition from securing fresh orders to focusing on production strategy in the overburdened aerospace industry, which now faces the immense challenge of delivering on order books extending seven to ten years.

CASTINGS HAVE BEEN A CHOKEPOINT SINCE THE COVID ERA

Castings—components formed from liquid metal that are hard to mass-produce—and forgings, which are shaped from solid metal and equally difficult to make, have constituted one of the sector's most obstinate bottlenecks since the COVID-19 pandemic.

GE's competitors are also trying to resolve the issue. Pratt & Whitney said last year it would add an in-house casting foundry in North Carolina, while Rolls-Royce is expanding an existing plant in Britain.

Employing ancient methods that use wax replicas and relying on cutting-edge technology to tolerate temperatures above their melting point, turbine blades sit at the apex of costly aerospace manufacturing, according to analysts.

They have also been central to wider production disruptions, increasing friction between the engine industry and airlines.

Decades of investment and specialized expertise have made the small group of suppliers tough to replicate and have maintained high prices.

"It's the black art of manufacturing, which has always been a huge barrier," said Kevin Michaels, managing director of AeroDynamic Advisory.

"It is the hardest thing to do...You might have to throw away half or more of what you make."

CPP is one of four major global suppliers for such castings and supplies a quarter of GE's needs, according to Jefferies.

GE had courted the Ohio-based firm for years as it sought an insurance policy against any disruption from larger suppliers Howmet or Precision Castparts Corp, industry sources said. Neither company was immediately available for comment.

THE DEAL IS SET TO ENCOUNTER ANTITRUST SCRUTINY

Expansion is not driven solely by bottlenecks.

GE plans to apply its LEAN production system to enhance efficiency and unlock greater rewards. Analysts say the tide was set by the turnaround and initial public offering of UK peer Doncasters.

Castings and forgings also occupy a central role in the strategic rivalry among developers of next-generation engines. China is likewise pursuing a position in the market, Michaels said.

"They (GE) are expecting a return that makes this work financially, but it also permits them to own a piece of the supply chain that is critical to the future of engine performance," said Jerrold Lundquist, managing director of advisory firm The Lundquist Group.

Broader competition for advanced metal parts drew attention last week when Elon Musk posted that SpaceX's plans to take certain castings in-house would be a "profound game-changer."

Deals like GE's are not without risk. They risk scaring off rivals that also purchase from CPP, or losing favor with large suppliers such as Howmet, with which GE also does business.

The acquisition will additionally face antitrust review. GE is expected to point to its existing ownership of Italian gear maker Avio Aero—a major supplier to Pratt & Whitney, which declined to comment.

"I would expect GE to be required to divest certain facilities, making the integration process and any related carve-outs quite complex," said Matteo Peraldo, aerospace and defense partner at U.S.-based AlixPartners.