General Electric’s Strategic Split

2 Mins read

In early April, General Electric (GE) will undergo a significant transformation as it splits into two distinct companies: GE Aerospace and GE Vernova. This strategic move is set to shake up the market and provide investors with new opportunities for growth.

Assessing the Pension Plan

As Wall Street analysts gear up to analyze the fundamentals of each business and investors contemplate the valuation of the new entities, it is crucial not to overlook an essential aspect – the health of GE’s defined benefit pension plan. Pension funding can pose a risk that shouldn’t be underestimated.

In its 2023 annual report, General Electric reported a pension obligation of nearly $49 billion, with assets totaling approximately $40.5 billion. This translates to a funding level of around 83%, a fairly solid position. The concept of pension obligation entails the present value of all future payments that a company is obligated to make to its employees and retirees.

Managing the Gap

While the calculated obligation might suggest a need for a $49 billion portfolio of Treasury bonds for full coverage, pension funds typically invest in a diversified portfolio that includes stocks and corporate bonds. This strategy aims to generate higher returns but also introduces a natural gap between the obligation and assets set aside.

A funded status ranging from 80% to 90% is considered satisfactory, with higher percentages viewed more favorably. In comparison, industrial companies in the S&P 500 have assets covering about 95% of their pension obligations, highlighting the industry standards.

Looking Ahead

With the impending split, GE Vernova is expected to carry a pension obligation of $17.5 billion, supported by assets of $16 billion, resulting in a funded status of approximately 90%. This strong financial position will be complemented by Vernova’s debt-free stance and a healthy cash reserve of around $4 billion on its balance sheet.

In conclusion, as General Electric embarks on this transformative journey, the robustness of its pension plans and financial structures will play a vital role in shaping the future success of both GE Aerospace and GE Vernova.

GE Aerospace Pension Obligations

GE Aerospace is facing a significant pension obligation of approximately $31 billion, while its assets are valued at around $25 billion. With a funded status of just under 80%, the company would require an additional $3.5 billion in pension contributions to bring the funded status up to 90%.

Financial Impact

The extra $3.5 billion needed for pension contributions can be seen as ‘pension-related debt’ for the Aerospace business. This additional amount will not alter the perception of GE Aerospace’s balance sheet among investors, as it will remain solid.

Debt Analysis

Analyst Sheila Kahyaoglu from Jefferies estimates that after the spinoff, GE Aerospace will carry approximately $7 billion in debt, less cash. This amount is slightly less than one times the estimated 2024 Earnings before interest, taxes, depreciation, and amortization (Ebitda). Factoring in the extra $3.5 billion for pension obligations, the ratio increases to about 1.4 times. Despite these figures, both numbers are within a reasonable range.

Future Outlook

Comparing to the average industrial company in the S&P 500 with a ratio of about 1.6 times, GE Aerospace’s financial standing appears steady. Additionally, the company is anticipated to generate strong free cash flow in the coming years.

Financial Stability for Independent Companies

Both Aerospace and Vernova, as newly independent entities, are expected to maintain investment-grade debt ratings. The financial outlook for GE Healthcare Technologies, spun out in 2023, also shows a pension obligation of nearly $23 billion and assets exceeding $19 billion, resulting in a funded status of about 84%.

Investment Consideration

When investing in established industrial enterprises like GE, cautious consideration of pension liabilities is essential. These companies often promise fixed retirement benefits to employees instead of contributing to a retirement plan over time.


Keeping an eye on pension obligations and financial ratios is crucial for investors interested in GE and its related companies. Despite the challenges, the overall outlook appears stable.

Related posts

Government Matching Contribution for Retirement Savings

2 Mins read
According to researchers, nearly 22 million Americans are set to benefit from a new government matching contribution initiative aimed at enhancing retirement…

Oil Market Update

1 Mins read
Oil Market Update On Tuesday, crude oil futures prices were lower, while refined product contracts were experiencing a second consecutive day of…

Carrier Global Sells Industrial Fire Business

1 Mins read
Carrier Global Sells Industrial Fire Business for $1.425 Billion Carrier Global has announced the sale of its industrial fire business to private-equity…

Leave a Reply

Your email address will not be published. Required fields are marked *