David Colhoun hardly knew what he was getting into when he agreed to head General Electric's aircraft engine division three years ago. The American economy was already ailing in 2000, and the airline market had collapsed after the terrorist attacks of September 11, 2001. But even during the downturn in the sector, Colhoun managed to keep his division's profits at the same level.

Demand for jet engines, parts and maintenance shows no sign of recovering. Two of the largest airlines, Airways and United Airlines, filed for bankruptcy protection. Others were on the verge of doing the same. The careers of airline managers also stalled. But Colhoun, 46, decided that even in a downturn, his business could not stop growing.

A close confidant of GE CEO Jeffrey Immelt, Colhoun has been with the company for 24 years and is expected to become one of its vice chairmen. Colhoun's aggressive market-winning strategy and willingness to take long-term risks has helped GE stay ahead of its main rivals in the jet engine market, Rolls-Royce Group and Pratt & Whitney, which is owned by United Technologies.

During the last industrial downturn a decade ago, GE's aircraft division saw its earnings fall sharply. This time, the opposite has happened - GE's overall financial health has improved thanks to the unit. Its operating profit rose 5% in the first half of 2003 to $1.03 billion, and its full-year revenue is on track to be $2.1 billion, up from 2002. By comparison, Pratt & Whitney's first-half profit fell 16%, and Rolls-Royce's commercial and military engine division's profit fell 24%.

"Colhoun has been able to avoid earnings declines during a downturn," said Kerry Stirton, an analyst at Sanford C. Bernstein. "That's unheard of."

Calhoun's success has been based in large part on cutting costs. Over the past two years, he has cut the division's workforce by 4,500, or about 15 percent. People have either been sent into early retirement or simply laid off. If the industry's downturn continues, Calhoun will have to lay off even more workers and take other cost-cutting measures. He has already limited business travel from the company's Cincinnati headquarters to Lynn, Mass., where the company's main engine plant is located. To save money, Calhoun has even reduced the number of color photocopiers in the company.

But Colhoun himself had already flown several thousand miles. At the same time, he had concluded strategically important contracts for the company. In particular, contracts worth several billion dollars with JetBlue Airways and the state-owned Emirates Group of the United Arab Emirates.

Calhoun likes to get ahead of the game and take risks. For example, in 2001, he decided to stock up on materials to make military aircraft components a year before GE received its first orders. Calhoun allocated 10 percent of his budget for materials and parts—about $800 million. He was confident that the Bush administration would fund new aircraft engines. In 2002, when there were still no contracts, he found another $1 billion in the budget to make parts. Both decisions turned out to be correct. As a result, military orders helped cover the losses in civilian aviation supplies.

A major test for Colhoun came in a meeting with JetBlue CEO David Neeleman. Colhoun, then just a couple of weeks into his job, was tasked with righting the wrongs of his predecessors, who had failed to reach an agreement with JetBlue on engine supplies.

Colhoun had a long way to go in explaining to Neeleman why his company needed GE engines. Late last year, when the company was planning a fleet of small jets for regional flights, Neeleman called Colhoun. After nine months of negotiations between the companies, JetBlue ordered 100 small jets with GE engines in June. "I knew if anyone had a good understanding of our strategy, it was Dave Colhoun," Neeleman says.

Even before the JetBlue deal, Colhoun had secured a contract for GE and Pratt & Whitney to jointly supply engines for 32 Airbuses to the UAE. Rolls-Royce had been supplying engines for many years. But in 2002, Colhoun and his Pratt & Whitney partner Robert Leduc made a deal in Washington with Emirates Group CEO Prince Sheikh Ahmed bin Saeed al-Maktoum.

In June, Emirates Group ordered 26 more planes, with engines supplied exclusively by GE. Colhoun personally flew to Dubai to negotiate with Emirates Group and convinced its executives that GE would remain a reliable partner throughout the contract. None of his predecessors had bothered to do so.

But even new orders and service contracts would not be enough to keep GE's engine division growing profits year over year. Colhoun faced a choice between cutting back on multibillion-dollar, long-term programs to develop new engines. Sometimes a company spends years developing an engine that may never be needed.

Colhoun says he refuses to interrupt long-term projects for the sake of short-term and quick-payback ones. Immelt supports him in this, constantly emphasizing the role of new technologies in the revival of aircraft manufacturing. The gloomy predictions of analysts do not frighten him. "I think we are at the bottom of the cycle," says Colhoun. "I am tired of predicting market declines, I believe that we will not go any lower." (WSJ, 25. 08. 2003, Kirill Koryukin)

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