GE Bets on New U.S. Plants for Growth

General Electric

announced it will open three new plants in America while adding 12,000 new jobs to the American workforce over the next five years. The new operations are part of the company's expansion in its aviation business. Already the largest producer of jet engines, GE Aviation saw revenues of $17.6 billion in 2010 and has 39,000 employees. The company is expecting higher demand for its jet engines, which has already boosted

as the company foresees the airline market to rise to $2 trillion. For GE, greater demand for jets has helped the company's aviation sector beat estimates, with a segment margin of 17.3 percent in the last quarter of 2011. Meanwhile, the company cannot build engines as fast as customers want them. Last year, a large backlog of orders for the company was led by demand for aviation equipment. GE Aviation's backlog rose at the end of 2011 as orders rose 44 percent to $4.2 billion, greater than any other division. Growth in Aviation's profitability--up 3.5 percent on a year-on-year basis--means that a higher volume of orders will also help the company's overall profit margin, as it did in Q4 last year. A higher margin would help the company, which saw its EPS fall by over 16 percent last quarter to 35 cents a share, down from 42 cents a share the year prior. Those disappointing results pointed to GE's need for expansion. A drop in overall revenue due to discontinued operations hit the company's top line, showing the need for expansion in strong sectors. The growth of Aviation operations may help the company offset its lower income and help it manage its growing backlog of orders. Aviation was also a target for growth since it was one of the few divisions not facing negative equipment pricing, at a rate of 1.9 percent versus negative rates in energy and healthcare. With a record amount of cash flow last quarter, when it had $5.5 billion from operating activities, the company has been poised to expand for some time. Having identified a growing sector that it is already dominating, GE was smart to move further into aviation. However, the company will need to shore up its lower revenue in other operations if it wants to impress investors in the coming year.