If your head is underwater, it does not matter how deep

Date 16.3.2021

Interview with Milan Slapak, President & CEO Czech Republic and Slovakia at GE

 

The COVID pandemic hit the entire aviation industry like a lightning out of the blue sky without any warning signs. Some crises are more predictable than others, just like new trends in radical technologies, lurking on the horizon, or newly forming social-economic trends. Nobody predicted a global pandemic of this magnitude and speed. Traffic volume dropped by 70‑80% within days, in some regions within a few weeks. You simply cannot prepare for an event of this kind. There are minor nuances across continents, but there has been limited recovery so far and the industry largely remains fragile. Flying through the rough air with turbulences will continue until transatlantic flights return to a decent traffic volume and the large hubs in Asia and the Far East fill up with passengers.

 

How profoundly has the COVID crisis impacted GE?

Airline revenues got slashed by 60% in 2020 year over year. Passenger traffic dropped by more than 65%, freight traffic by nearly 50%. These unprecedented circumstances force governments to commit over 120B USD in various stimulus packages towards the aviation industry’s recovery. Nevertheless, it is expected that global airlines will need additional 70-80B USD of government support to survive the pandemic. Most analysts predict it will take approx. four years to get back to pre-COVID traffic volume. A lot can change, however, depending on the effective deployment of vaccination (that varies greatly across the world) or future potential mutations of the virus, which could cause new virus outbreaks and lead to further local or regional lockdowns. IATA already requested EU to develop some form of a Vaccination Certificate for travelers, that would allow individuals to travel freely within EU without COVID testing. Such steps, making air travel easier in the current environment without compromising the safety of travelers leads to a reduced pressure on the already cash-stressed airlines.

The volume drop does not affect only the recently manufactured products such as airplanes and engines, more importantly, it also has a negative impact on the service and maintenance sector, that generates the most substantial revenues and margins for most of the players in the aviation industry. The entire value creation chain is sustainable in the long run only if the airplanes are up in the air with relatively high seat utilization. That is not happening today, therefore, companies have been rightsizing to adjust to the new reality.

I personally believe that the speed of this rightsizing will be a game changer that separates the industry leaders from followers, potentially losers.

 

Of course, rightsizing is typically associated with tough and unpopular decisions. While making bold decisions you cannot aim to satisfy all, that is impossible. It is not a popularity contest. It is, however, possible to execute such decisions with full respect, dignity, fair and fully transparent approach.

GE Aviation reacted to the rising pandemic promptly and shared its plans in May 2020 to reduce its global workforce by 25%. That was a very difficult move, and we all wish it did not have to happen. At the same time, one year after the virus outbreak, the business is now well positioned for the upcoming tough years. Referring to our press releases over the last six months or so, it is clear that we successfully managed to protect the core programs, core expertise and competencies and kept the business growing. During these turbulent times, it is important to not only play a defense but also an offense, as each crisis brings new unique opportunities.

Have you ever experienced a similar situation or crisis? Is it possible to compare COVID crisis with anything from the past?
I have always seen myself as a young guy but answering this question might make me sound otherwise. Over 22 years with GE, which is basically my entire professional life, I had a chance to work for various GE divisions in different roles and different countries. That presented me with many opportunities to face my fair share of crises or economy downturns. In the light of the COVID pandemic, it may sound odd, but I do enjoy navigating through a crisis. Each crisis always reveals the true character and personality, it tends to bring out the best and often also the worst in us. A crisis certifies our skills, strengths and mental resilience. It also forces us to demonstrate our creativity and non-conventional thinking and since each crisis is different, it brings a new challenge every time. As today’s world economy is globally connected, new crises are usually more complex and bring a higher degree of uncertainty and unpredictability. Here is what sticks in my memory.

I was with GE Transportation at the time of the 9/11 attack. Within a few hours, everything got grounded, the entire airspace in the United States was locked down, all harbors closed and sealed, no material coming in or out. That was a major challenge for production-oriented companies such as GE and for our global supply chain. While the attack was unprecedented and absolutely horrifying, the impact on the businesses was relatively short-lived, rather local, and did not affect service. There was no increase in the unemployment rate, in fact, new business opportunities and new jobs were created in response to the terrorist attack. Some were predicting it would be the end of the aviation industry. Yes, the industry had to adapt to the rise of new safety measures and overcome the travelers’ fear, but it recovered quickly.

Lehman Brothers and the 2008 financial crisis. As the financial institutions operate globally, this crisis was one of the first ones to spread quite a bit geographically. Markets and businesses were lacking and/or protecting cash, which led to bankruptcies and increases in unemployment. Not unlike today, cash was the name of the game. Even though some industries were affected more than others, overall, they still recovered relatively quickly.

The COVID crisis is totally different in my opinion. It is 100% global, I cannot think of a country not affected, almost all industrial and service sectors are impacted with up to 80-90% volume gone, IT and a few others being an exception.

Within just one month, the unemployment rate in the United States increased by approx. 10 pts, Europe is still on steroids and helicopter money.

This crisis is deep and will last for a while; businesses are in the process of reassessing and adjusting their business models to adapt to the new reality. What is also different is that this is not just another economic crisis. Thousands of people have already died and thousands more will still die, unfortunately. It is a social crisis too, as many governments resort to temporary restrictions of free movement rights and interfere with our daily routine activities, that we take for granted. This is historically unprecedented.

How do you lead the business in such an unpredictable environment? Where do you find inspiration for coping with new situations? What do you consider to be the biggest challenge?

Without a doubt, the number one priority was and still is to ensure the health and safety of our employees. All aviation companies operate with a “Safety First” mindset and it equally applies when it comes down to our people. There is no room for compromise. It is a must to act with the highest possible speed and be decisive, even with lacking information at hand. Plan for the worst, hope for the best.

Immediately after the virus was discovered in Asia, we held a crisis team meeting in the morning to go over the latest news and we were taking decisions right on the spot. It was highly effective, and it helped us create a strong COVID-awareness culture and get people on board. We do not meet daily anymore, but we review the situation on an ongoing basis and adjust the system when necessary. I consider existing prevention to be temporary countermeasures, as the rest of the year will most likely be very volatile and the country will still experience regional virus outbreaks. Then, I assume, the system will stabilize, as critical mass of population gets vaccinated and the government implements long-term preventive measures. That would be a good time to revise the organizational setup and adjust for long-term countermeasures.

A new dynamic for our leadership was a temporary but radical increase of people working remotely, say about 50% of our workforce worked from home every day. That presented new challenges in terms of effective team management, social contacts and execution. I do not believe that working from home permanently will become the new norm, we are social animals and need social interaction. During a crisis, some people tend to judge too quickly, usually when the pendulum is swung to the extreme. A combination of working one or two days a week from home and the rest from the office is a more likely scenario. Anyway, in the short term, we do our best to make working from home as effective and convenient as possible. It is critical to stay focused on the company culture and company values. Some leaders question whether all employees work from home with the same level of dedication and efficiency as they do when at the office. I am not worried; there might be a few rotten apples here and there but in a well-managed organization with the proper culture, the system will self-regulate. I am a big believer in a principle of managing outputs, not inputs.

The toughest challenge in the current environment is communication and motivation.

There is a close link between these two ultra-important pillars. In times of increased volatility and perceived risk of job security and health threats, frequent communication is key. Honest, candid and transparent communication using crystal clear and plain language is necessary. I feel like we made significant progress here but there is always room for further improvement. People want, and fully deserve, to know what the game plan is, what is going on, how the business is doing, how the business strategy might change. These conversations are critical, especially if the company went through some resizing and budget replanning. We also meet regularly with the Union leaders, that we have a robust and fair relationship with based on trust, to keep them informed of the actual plans and state of the business.

Where do we draw inspiration from?

 

We shall never aim to be the smartest in the room; if that is the case, then we are in the wrong room.

 

I find it way more effective to have a strong internal and external network of smart and diversified contacts to exchange ideas and best practices with. GE network obviously provides an array of extremely valuable insights and tools. At the same time, being an active member of the American Chamber of Commerce generates tons of lessons, learned sharing and exchange of practical experiences, as well as a strong relationship with the Government and its institutions. As good citizens of the Czech Republic, we want to contribute, so we actively help local businesses and society.

What specific impact has the pandemic had on the ongoing programs at GE Aviation in Prague, what measures against COVID has GE implemented?

A long and deep crisis, such as the COVID pandemic, makes you focus your energy on what really matters. And that is exactly what we did. Without any compromise on our people’s and flight safety, we scrutinized every budget, every program and its scope, every schedule and the expected return multiple times, as well as assessed portfolio of products and services.

I am proud that we have managed to protect all key R&D programs, such as Catalyst and aerobatic H-series engines development and certification, that will fuel our future business growth.

Whatever else did not make it to the list was put on hold or cancelled. Regardless of the portfolio optimization, I am confident that we are still one of the biggest spenders, if not the highest spender, among the high-end research and development activities in the Czech Republic.

In terms of preventive safety measures, we quickly implemented a home office option for all roles that could be performed remotely and combined it with a red–blue team principle, which basically splits each team in two. A blue team member would never meet a person from the red team, and vice versa, in order to protect the function in case somebody contracts the virus. The production organization, which requires a physical presence at the site, implemented extra safety measures centered around social distancing, increased hygiene, etc. We significantly reduced the amount of people located at the site at any given time. Thanks to the holistic approach that we called Layers of Safety, we continued production without a single disruption and kept the GE community safe and healthy.

Since the very beginning of the global pandemic, we leveraged the centralized intelligence and best practices from GE headquarters, so we were always one of the fastest movers in terms of implementing temporary and permanent countermeasures to protect our employees and business. Our facility and security personnel were in contact with other GE sites located in China and Italy to quickly learn from them. Information is power and being an integral part of a large organization such as GE definitively helps.

An interesting lesson also came from the service support organization. As the borders were closing and additional travel restrictions were being implemented on a global scale, we had to quickly adapt our model of supporting the engine fleet in the field. We had to find a way to quickly and safely grant more authority for engine maintenance to our external service partners, and in some cases to the operators, as our internal mobile repair team was not able to reach certain areas within a reasonable time frame or not at all.

At the end of last year, you have announced the first fully aerobatic H75 prototype engine. Where do you see the market potential?
We centered our focus on aerobatic model of H-series engine that we are developing for Diamond Aircraft’s DART 550, a brand-new turboprop trainer aircraft. We are optimistic about the market potential of this application and about the market segment of turboprop training applications itself. Not only will a significant amount of turboprop aerobatic aircraft be retiring soon, but technology has also made quite a rapid progress and market users are vocally demanding a next generation of aerobatic trainers. They need more take-off power and simplified engine and propeller control that reduces pilot workload, so the pilots can focus more on what’s happening outside the aircraft.

Pilots demand an aerobatic jet-like feeling and experience.

Aerobatic turboprops often breed the future aerobatic jet pilots or offer alternative training options to the existing jet pilots.
It is expected that the next generation of jet trainers will launch to the market soon as well, therefore, it seems like the perfect time to bring out a new generation of aerobatic turboprops for training schools or end users to upgrade their integrated training solutions with.

Back in December, we announced – together with Diamond – the first flight of DART550 with the first fully aerobatic H75 prototype. Everything went as planned. Due to safety precautions, we had only one technician on the ground at the Wiener Neustadt East Airport in Austria, supporting the first flight. He was streaming this exciting moment live for all of us watching remotely. There was about fifty of us from multiple countries, watching and enjoying the moment. Prior to COVID, six or eight people would have had the privilege of being there in person. Let’s look on the bright side and give a little credit to the virus for making us creatively deploy the IT technology and share this program milestone with a much broader team.
We packaged all ingredients that we believe the aerobatic market expects from the next gen. Better hot and high performance than the existing product, range of power class that covers the entire spectrum of market needs and simplified control of engine and propeller. Jet pilots are used to the fact that the jet engine control protects the engine from damage such as over torque and over temperature, incidentally caused by a pilot mistake. That is exactly what we plan to bring to the turboprop aerobatic world.
What I also love about the Aerobatic program is the fact that it is the first R&D program that takes full advantage of external R&D ecosystem that we developed in the Czech Republic. A significant amount of technology testing has been performed at the Czech Aviation Research Institute, VZLU, in a collaboration with Czech Technology Agency, TACR, and with an extensive support of local Czech hardware suppliers.

We have also seen new milestones in your Catalyst program recently. How do you see the progress with CVUT, what’s next?
2020 was another great year for the Catalyst program.

We have completed nearly all our development testing without any major obstacles.  The engine’s performance exceeds our expectations, the engine and propeller control, that is entirely integrated into FADEC, works perfectly. The engine’s hardware condition also exceeds expectations, as we inspect individual parts after various tests. Now we are in the process of ramping up our formal certification test campaign: two engine certification tests were successfully completed this past year, and just in February, we passed the icing certification test in Canada. Our confidence in the product is extremely high. Throughout the various stages of the program, we had about 400 European engineers from the Czech Republic, Italy, Germany and Poland contribute to this program with over 2,250 hours of testing completed to date. As Catalyst is the very first GE engine fully developed and certified in Europe, it is a unique concept. We call it Federated Europe, and we feel pretty good about this success.
Collaborative Research with the Czech Technical University, CVUT, progresses further as well. Despite the pandemic, we managed to complete all planned testing in the CVUT ground test cells in order to generate actual test data for the preventive maintenance model that CVUT has been developing. We found an innovative way to monitor the experimental testing remotely in real time, which dramatically reduced the number of engineers physically located at the test sites. We continued the GE know-how exchange with CVUT in order to develop both capacity and capability at their facility, related to experimental turboprop engine testing. As a result, CVUT now has two independent and integrated teams, capable of running the experiments on their own.
That gives all of us a great sense of accomplishment. In addition, the Center of Aviation and Space Technology (CAAT) of CVUT already filed seven patents since the cooperation with GE started and there are some more in the pipeline.
Now, this is a massive undertaking for the CVUT team, from what I understand. They did not expect such scope, including a development and management of state-of-the art-infrastructure, running experiments and coordinating hundreds of actions and issues. Dean Valasek, rector Petracek and the entire CVUT team all deserve huge respect for what they have achieved so far, I am confident it already exceeds their own expectations from three or four years ago. What is encouraging is also the support of the Aviation and Space sector by the Czech Government. The Prime Minister and the Minister of Industry and Trade both visited the GE Research Center in the US as well as the CVUT test cells.

And what’s next? CVUT, along with our team of specialists, achieved a major milestone in December, when the Catalyst engine was installed on the CVUT flying test bed, KingAir 350 aircraft, and fired up for the first time. I had a chance to be there in person during the final preparation before the engine start and the energy and excitement in that Berlin hangar was so intense you could almost touch it. The CVUT-GE team is now marching forward towards the first flight of the CVUT experimental airplane. That is planned for the spring. Exciting times, as you can imagine.

What does the future hold for aviation – did the pandemic accelerate the development of certain sectors of the aviation industry? Any new trends?

Some trends have been evident even prior to the pandemic outbreak and their further development might get accelerated by the COVID crisis, some might be new. At this point, it is all just a reading from a crystal ball and here is what I see when I gaze into my own crystal ball.
I expect a rapid innovation in the airport and airplane infrastructure related to virus detection and to both preventive and reactive virus elimination. Such infrastructure needs to effectively prevent new human carriers from contracting the virus and to address the fear of passengers. As long as there is a risk of infection and fear, there is no hope the volume of traffic will increase. The same happened after 9/11; some were saying it was the end of flying as we knew it. 9/11 created new logistic and security standards that became the new norm and I’ll argue the new norm is more efficient and more user friendly that the system prior to 9/11.
I also expect the private and business aviation to grow in the short- and mid-term, as certain customer segments still need to travel, yet they will demand flight flexibility and safety. In the current environment, it is very difficult to travel from point A to point B as many routes – especially in Europe – have been cancelled and it became quite common for flights within EU to have two or even three flight legs. Not to mention the risk of a flight being cancelled at the last moment due to a new local lockdown or low airplane utilization. A 12 to 16 hour travel time for what used to be a 2 hour trip is not sustainable.

Most analysts predict that the traffic volume will remain low in the upcoming years.

 

Also, business travel that generates higher margins will probably never come back to its pre-pandemic volume due to a change in consumer behavior. Therefore, airlines are expected to address risk of lower aircraft utilization and overall lower volume. In other words, they will be looking for options to drive margins through more effective operations. Combined with the emphasis on faster decarbonization in general, we should see a faster development of hybrid electric applications across the aviation market segments and hydrogen powered sources of energy. It will take some time for the technology to mature and get certified, but the industry is on it. Here I see a great opportunity to be smart about the distribution of the EU recovery fund, to invest public money into the aviation sector recovery for example, while addressing some of the world’s toughest challenges.

 
What will the “old new” look like in general and what will it look like for GE in particular? Can you predict the next 5 years in the aviation industry and what it might look like for GE in Prague?

I would look at it from the WHAT and the HOW angle. The “what” in terms of what products and programs we will invest in and how we execute them, and how we take the utmost care of our customers.
GE Aviation leads through innovation and I am certain we will keep investing wisely into future technologies to protect our market position and to ensure our customers are safe and successful. We will remain brutally honest with each other and always evaluate whether a new product is the right one.

The “how”, as in how we honor our commitments to employees, customers and shareholders, will surely change too. Home office, remote locations, social distancing, further development of new innovative IT solutions will change the way we work. Work environment will find its new balance within the next 1 or 2 years, once the majority of population is vaccinated and most of the health risk is under control.

GE Aviation Turboprops with its headquarters in Prague has a clear strategy. It might change, it always can regardless of whether the crisis escalates or not, however, for now we know what we want to do. The family of GE turboprop engines, H-series and Catalyst, can cover 550 to 2000shp, that is a big playground we can plan in. We also see enormous potential in several markets on different aircraft applications (like trainer and UAV) and one of the most exciting developments on the horizon is hybrid-electric. Additional technology advancements in power storage and distribution, integrated within the Catalyst engine, can deliver a great solution for hybrid applications.

The Catalyst was already selected for XTI Trifan 600 hybrid, which is a positive indicator the Catalyst is well positioned for the emerging hybrid markets.

Do you see anything positive coming out of this pandemic – for you personally, as a manager and for GE as a company?

Jack Welch always said: “Change before you have to” and one of my very first GE managers, John Kathman some twenty years ago told me: “Change is good. Repeat it fifty times every morning when you wake up”.

 

Therefore, constant change is part of GE’s DNA and part of my own DNA too.

 

We embrace the change, including change resulting from a crisis… it creates opportunities, we are all better and stronger after coming out of the storm.
A completely new element for me was addressing the life-threatening aspect of COVID in its basic nature. We always focus on flight safety, health and safety in our very work environment – that has always been the top priority. But in the times of the COVID pandemic, it is different. You face an invisible enemy that could eventually be fatal. It is a different level of threat compared to, for example, making a welding operation safer or executing further improvements in ergonomic settings. It creates a strong bond between the leadership team and employees. It got very personal, I have never felt such a huge responsibility for protecting the health of our people and their loved ones.

I am also proud of how we handled the first year of this unprecedented situation as an organization.

 

We optimized our product portfolio and adjusted our business model to focus on what really matters the most. We got leaner and are poised for future growth. But it takes courage and hard work, there are no shortcuts.

There are no manuals on how to survive the global COVID pandemic, there are no magic pills. You need to be honest with yourself and your teams and do what’s right for the business.  You need to keep executing your top priorities to get ahead of the game, otherwise, you drown in the sea of distractions. If your head is under water, it does not matter how deep. You simply must get above the water, breathe and swim. The same applies in business.

Interviewed by: Kateřina Urbanová
Photo: ACE (Jan Pirgl), GE

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