General Electric Co. plans to reduce 12,000 jobs in its energy business as the company's new leaders seek to cut costs and stabilize the struggling manufacturer.
The reductions, which account for about 18 percent of GE Power's workforce, include both professional and production employees, the company said Thursday in a statement . The world's largest gas turbine maker said the unit needs to become thinner as customers abandon fossil fuel-based energy sources.
"This decision was painful but necessary for GE Power to respond to the disruption in the energy market." Division Chief Russell Stokes said in the statement. "Power will remain a work in progress in 2018. We expect the market challenges to continue, but this plan will position us for 2019 and beyond."
Movements, as GE also re-evaluates spending on areas such as research and development, add to a wave of cost cutting by CEO John Flannery, who already it reduced the use of corporate aircraft and delayed work at a new headquarters in Boston since it took over in August. GE said last month it would cut the quarterly dividend and sell some business.
Cutting labor will help GE achieve its goal of cutting $ 1 billion of structural costs next year in the energy division. That plan is part of a larger effort to cut $ 3.5 billion in company-wide expenses through 2018.
Stocks rose less than 1 percent to $ 17.77 before regular operations in New York after falling to a low in almost six years on Wednesday. GE has fallen 44 percent this year, easily the worst in the Dow Jones Industrial Average, which has risen 22 percent.
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GE had about 300,000 employees in its operating units at the end of last year. . Power was the largest division of the company, with sales last year of $ 26.8 billion. The total would have been $ 36.8 trillion after taking into account the effects of a reorganization this year in which GE added some energy companies to the unit.
While GE did not specify where the job cuts will come, most will be outside the United States, according to a person familiar with the matter who asked not to be identified to discuss the details. The positions in France will not be affected by the stipulations of an agreement when GE bought the energy business of Alstom SA in 2015.
The manufacturer has been very affected by the demand for electricity generated from natural gas, in part due to a shift towards power from renewable sources. In addition, "we have exacerbated the market situation with really poor execution," Flannery told investors last month.
The power unit expanded considerably with the acquisition of Alstom for $ 10 billion, but the agreement has become a liability. In order to expand the range of products with steam turbine technology, the linkage pushed the GE workforce to 65,000 at a time when the market was slowing.
"Alstom clearly has worked below our expectations," Flannery said last month. to the assets acquired from the French company.
Changes in administration
As the size of the obstacles became apparent this year, GE made changes in management in the energy business and reorganized the divisions. Stokes was named head of GE Power in June, replacing Steve Bolze, who left the company shortly after Flannery was named to succeed Jeffrey Immelt as next CEO of GE.
Online messages for GE employees were active in recent weeks as workers discussed layoff notices that are issued at GE Power's manufacturing sites, such as Greenville, South Carolina, and Schenectady, New York. GE also met with union representatives in Europe this week to discuss the cuts there.