Good morning, and welcome to the First Quarter 2020 General Electric Company Earnings Conference Call. My name is Brandon and I’ll be your operator for today. [Operator Instructions] Please note this conference is being recorded. And I will now turn it over to Steve Winoker, Vice President of Investor Communications, you may begin sir.

Thanks, Brandon. Good morning and welcome to GE’s first quarter 2020 earnings call. I’m joined by our Chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe. Before we start, I’d like to remind you that the press release and presentation are available on our website. Note that some of the statements we’re making are forward-looking and are based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements can change as the world changes. With that, I’ll hand the call over to Larry.

Steve, thanks. Good morning everyone. We hope you and your families are healthy and safe. Our thoughts are with all of those affected by this global pandemic. We recognize this is a very difficult and challenging time for everyone. On behalf of GE, I want to express our gratitude to those on the front lines in the medical community, many of whom we’re privileged to call our customers working tirelessly to protect all of us, thank you. When we last spoke during our outlook call in March, we were encouraged by the continued strength in Aviation and Healthcare and the progress made in Power and Renewables. In the eight-week since, the world has fundamentally changed as we all know the COVID-19 pandemic evolved rapidly, hitting hard and hitting fast. While this is an earnings call, our goal today is to provide you with the most current and relevant information we have, and as always to be as open and transparent as we possibly can. So forgive us if we ran a little long today. The COVID-19 dynamics at GE, like the economy at large, are fluid and still evolving but clearly challenging in the near term. With that, I’ll start with our response to COVID-19. Carolina who is joining our earnings call for the first time will cover the financials, and then I’ll wrap with a more in-depth view of our current operations. Moving to Slide 2. During this unprecedented time, we’re focused on three areas. First, the health and safety of our employees and our communities. We established a COVID-19 task force that is working to ensure we’re doing everything in our ability to protect the health and safety and aligning with the various government directives and medical advisories in real time. To that end, we’ve encouraged those employees…

Thank you, Larry. I’m proud to join my first earnings call as CFO of GE and help lead this company into - forward. As we noted, we’re operating in unprecedented times, and we’re focused on; first, keeping our financial position strong and safe with a keen eye on leverage on liquidity, as well as cash flow and capital discipline. While GE’s actions over the last couple of years have put us on a stronger footing ahead of this situation, we will do more. Second, working with our businesses to take the right actions, not only to help mitigate the impact of COVID-19, but to serve customers better, operate smarter, and more efficiently, and integrate lean more holistically. While Larry and I are focused on the near term, we’re also managing for the long term. We’re working together to reduce complexity at GE, adding a lean culture that deliver sustainable earnings and cash flow generation. Today, my intention is to take you through our results in detail and provide context that help you see what I see across the businesses. With that, let’s turn to Slide 4. This was a challenging quarter for us as the macro environment rapidly deteriorated. Taking it from the top. First quarter orders were down 3% organically or down 4%, ex-BioPharma. Growth in Power and Healthcare was offset by double-digit declines in Aviation and Renewables. Both equipment and service orders were down to low single digits. I’ll cover this by business shortly. Industrial revenue was down 5% organically or down 6%, ex-Biopharma, with equipment revenue flat and services down 9%. Both Aviation and Power Services were adversely impacted in the quarter due to COVID-19. Adjusted Industrial profit margins were down 450 basis points organically. Most of the dilution came from Aviation and Renewables with Aviation impact…

Carolina, thank you. There is no question that COVID-19 is putting real pressure on our businesses. Given that so much has changed in this quarter, it will be our first full quarter with pressure from COVID-19. I’d like to spend some time here discussing second quarter trending based on what we’re seeing through the month of April. So starting with Aviation on Slide 9, of all of our Industrial segments, this business is feeling the impact of the pandemic most severely. The rapid contraction of air travel has resulted in a significant reduction in demand, as commercial airlines suspend routes and ground large percentages of their fleets. We’ll cover commercial services and engines on the next two slides in detail, but on the other end of the spectrum, demand for our military business remains strong. To that end, we rebalanced some of our capacity to meet this increased demand. To offset some pressure on the commercial business, we’re taking several steps that while painful preserve our ability to adapt as the environment continues to evolve. We’ve previously announced $500 million to $1 billion in costs and cash actions and we’ve now increased this targeting more than $1 billion in cost actions and more than $2 billion in cash actions. This will be achieved through different initiatives, some of which have been completed, others in flight as we speak. These include a 10% reduction in Aviation’s total U.S. workforce and furloughs impacting 50% of its U.S. maintenance, repair and overhaul facilities and new engine manufacturing. We’ll continue to monitor and potentially extend, as required. We’re also focused on reducing the discretionary and CapEx spend and optimizing working capital. I know Aviation’s decremental margin through this pandemic is top of mind for investors and Carolina touched on the main dynamics impacting our…

Great, before we open the line. I’d ask everyone in the queue to consider your fellow analysts again and ask one question and a follow-up, so we can get to as many people as possible, Brandon. Can you please open the line?

Yes. Thank you, sir. We'll now begin the question-and-answer session. [Operator Instructions] And from Vertical Research, we have Jeff Sprague. Please go ahead.

Thank you. Good morning, everyone. Hope everyone is well. Thanks for all the great detail.

Good morning, Jeff.

Good morning. I was hoping you could provide a little bit of colour on how you kind of view the - kind of the asset quality of the contractual service agreements and the like. There is a lot of assets there, obviously there is at least a temporary impairment of cash flows. How does that test work? Have you done it yet and are you close to any particular thresholds there that we should be thinking about?

Jeff, I think if we look at the service backlog, right, broadly just under $325 billion for the company. The vast majority of that, $234 billion is in Aviation, and I suspect that's where you're most focused. We go through those backlog reviews and the CSA reviews on a regular basis. What we've done here over the last - call it the last seven, eight weeks is really tighten and quicken the review process that we do with the businesses both at Aviation and at GECAS. What we're trying to do is make sure we've got the latest, and if you will most accurate information possible with respect to customer risk given everything that's going on. So we do that on a regular basis. We did that at the end of the first quarter in closing, much as we do every quarter. Clearly, we've got a - we've got a fluid situation and I think the modest charges that we took, the modest changes in the first quarter clearly are going to play out as we go through the course of the year. We can't really scope that for you today. If you look at the CSA book in Aviation for example, as we went through the mechanics of the future billings, the future costs related to those billings, based on the information at the time, it was really just $100 million adjustment, non-cash of course, which is why you see a little bit of the earning cash dynamic. Certainly, as we go forward, we're going to be updating those adjustments. And again, we would expect that we would see more of that given what the airlines are doing with their planes. But I think it's important to keep in mind. Again, these are 10- to 15-year agreements, as you know, and those adjustments are taken in the context of that particularly extended time period.

Great, thanks for that. And just as a follow-up if I could, I know you don't want to get real precise on guidance, but you are pointing us to a further decline in cash flow in Q2, which isn't surprising, quite frankly, but could you bracket that at all for us what we should expect for Q2, and any high-level thoughts on how the year plays out from a cash standpoint?

Yes, Jeff, I think that we took guidance off the table a few weeks back and didn't want to take an attempt at framing formal guidance here today in light of all of it is fluid and all of it still evolving here. I think the tack we took was really to try to share as much with you as we possibly could in terms of the April detail business by business and acknowledge that we're going to see a more challenging second quarter here given the full impact of COVID and the like. But beyond that, I think that's really where we are. We know we've got to get to work on the cost and the cash actions. That's why you see us doubling that activity in Aviation, stepping it up elsewhere around the company. So the $2 billion of costs, the $3 billion of cash will clearly help us later on in the year as those actions take root. But today, I think that's really what we're -- that's what we know and that's what we're comfortable sharing.

Great, thanks. Best of luck. Larry. Thanks.

Thanks, Jeff.

From Morgan Stanley, we've Josh Pokrzywinski. Please go ahead. Josh, your line is open, you might be on mute. Josh, you might be on mute.

Josh, you there?

Brandon, let's move on and come back to Josh.

Okay. Sure, next question we have from Bank of America we have Andrew Obin. Please go ahead.

Yes, good morning. Can you hear me?

Hey Andrew - I can hear you.

Yeah just a question - thank you so much and good luck to everybody. So run rate, minus 60% in terms of shop visits, 50% on CSAs. Do you think you continue to trend at this level in the second quarter or is there a more downside?

Andrew, the - I think, you're referring to Page 9 in the slide deck.

Yeah, in the Aviation.

I think what we're seeing here - yeah, I think this is what we're seeing right now, right. And given what the carriers have said publicly what they're doing. We think these are good likely near end run rates to share with you. Again, we're not trying to offer up a definitive view as to the next several quarters. But this is -- this is what we're seeing right now in the second quarter for sure.

And my follow-up question on spare engine sales, I think minus 60%. Have we lost these or will these come back when the situation normalizes? Maybe you can give us some sort of framework how to think about spare engine demand over the next couple of years? Thank you so much.

Andrew, we were ramping spares with both the LEAP-1A and the LEAP-1B as the narrow-body market was taking off, typical early in the life of an engine activity we are clearly seeing that soften, not necessarily going to zero as preparations are being made for the return to service of the MAX, right. I don't think that opportunity is lost. But I think like much of what we're seeing in Aviation broadly, it will be pushed out for a few years. And again, I don't think we're taking a definitive view as to what year or what quarter things get back to, if you will, a normalized 2019 level, but we recognize the discussions out there about this being a multi-year recovery, gradual, slow. I think we're embracing that reality and that applies really across the portfolio both on the OE side as well as the aftermarket, spares included.

Thank you very much for all the detail and stay safe. Thank you.

From Melius Research we have Scott Davis. Please go ahead.

Hey, good morning guys, and welcome, Carolina.

Thank you.

Larry, any - good morning, Larry. Any way to think about the cost actions as it relates to kind of structural versus more kind of pandemic short term related.

Sure. Well, I would say, Scott, as you well know that when we're in a mode like this, you're moving as quickly as you possibly can almost anywhere that you can. So if you look at what we've announced at Aviation, the doubling of those activities today, the broadening across the company. If you look at the tally today there is a decidedly short term bias there that Carolina and I are going to be working with the CEOs over the coming weeks to transition to a more permanent action, right. If you look at what we did in Aviation, for example, in terms of the temporary lack of works that was a way to quickly adjust our cost structure in that business on a variable basis to these shockingly fast changes in demand. You might categorize that as temporary. We need to work through the changes on a more permanent basis that are required in light of the length of the recovery that we're looking at. So we have confidence in these -- in these numbers that we're sharing today, the $2 billion of costs, the $3 billion of cash. There is a bit of a tactical bias today just given how fresh this is, but we will be leaning in toward making more of them permanent recognizing though at the end of the day, there will be a bit of a mix, be it head count related discretionary spend on the cost side in addition to some of the working capital and certainly the CapEx reduction that Carolina referenced, the 25% reduction year-on-year. So a lot going on, and by no means is this - these headlines today the end. It's very much a work in progress.

Okay. That's helpful Larry. And when you think the $20 billion kind of came to you pretty much about perfect timing, but does that money just sit on the -- does that have to sit on the balance sheet pretty much as is for the, for the year can you -- or is it just such a big number you can start to parse some of it out to thinking in terms of whittling down some of the debt that you can -- you can manage?

Well, we, it did come at a at a good time there is no question, that's why we put the emphasis in the BioPharma set up on certainty, right. We want to take the market risk off the table relative to thinking through the healthcare options. Carolina, anything you want to add relative to kind of managing liquidity versus leverage right here? I think with...

Yes. I think it's important to acknowledge that the world is different now compared to before COVID and it's very important for us, of course leverage is important, but liquidity is very important and we end the quarter with $47 billion cash right and that's really to cover $18 billion of GE and GE Capital long-term debt maturities now through '21. And actually, after the April actions we are down to $13 billion of maturities for '20 and '21, almost all of that in capital. But I would also say, we expect to have around $20 billion in total credit lines going forward and that's really in line with our risk appetite. We have the new $15 billion three year RCF that I mentioned and $5 billion turnover will be on a $20 billion of credit lines. And I think, we just said that you know, we really intend to maintain a high level of cash, I would say to maximize flexibility, and that's why we're taking these actions also to de-risk our balance sheet and basically prudently manage our liquidity in these very challenging external environmental times.

That makes sense. And thank you and good luck to you guys.

Thank you.

Thanks, Scott. Be well.

And let's try Josh Pokrzywinski again from Morgan Stanley. Please go ahead, sir.

Hi, guys. Can you hear me this time.

Yes.

Clearly, Josh. Good morning.

Awesome, and hope everyone is well. I'd echo earlier comments. Larry, can you just give us a sense, and I know you guys have data going back eons in Aviation. How the impact of retirements and cannibalizations kind of make more of a U-shape versus what the air traffic may look like? Is there a natural lag between when folks start flying again and when shop visits can happen just as a function of kind of using up some of the run time on otherwise idled assets?

Well, Josh. Certainly we have - we have revisited the history. The team is well versed in what we have seen in years past. I'm not sure we've seen anything kind of on par with this, but there is no question that there is going to be a bias on the part of some as some of these fleet reductions play out to retire some of the older aircraft, and that will factor into the - to the aftermarket, much like some of the dynamics around green time and how here in the short term folks try to preserve cash, carriers who try to preserve cash in their business. So I'm not sure that there is necessarily an exact model that captures what all the carriers and aggregate are going to do here, a model that offers great precision. I think we do know that the combination of these factors is going to create pressure for us -- for us here in the short term. I think what's most important for our business really is cycles, much more so than revenue passenger miles. And as we see schedules come back, as we work our way through the pandemic that will, that will put us back on, I think, better footing. But here in the short term, I think we're acknowledging that we're going to see shop visits and CSA billings take on some real pressure due to the downturn.

Understood, thanks. I'll leave it there.

From JPMorgan, we have Steve Tusa. Please go ahead.

Hey, guys. Good morning.

Hey, Steve. Good morning.

In early March, you guys had that slide that showed $2 billion to $4 billion in free cash flow guidance, which is obviously off the table, but you also talked about things growing in '21 and '22 and off that kind of $3 billion base. I think most research and numbers I saw were kind of in that $6 billion range of free cash flow. So kind of growth off of that level. Are we still like is -- are the out year numbers still at all legit or is that -- are you kind of withdrawing that long-term outlook as well.

Steve, I think we have admittedly been focused on taking the right actions both the cost, the cash, the balance sheet actions here in the short term in the face of this unprecedented pandemic. We've taken guidance off for the year. We're not putting it back on today, just given the -- given the undo -- uncertainty of it all, right. So I don't -- I don't think we're trying to get out any further than that. I appreciate the question, but I think for purposes of today, we're really just trying to the frame for folks what we're seeing. But that said, however long it takes us to work through this, I think we feel very good about our ability to come out stronger and get back on a positive cash flow growth trajectory.

Got it, got it.

Carolina, anything you would add to that?

Well, no, I think it's important to acknowledge that by taking out cost now and part of it being structural that gives us sort of as well as mitigating the decrementals that helps improving the incrementals. The outer years, I mean that will depend on the recovery on the industries as well, so that I would say almost impossible to speak to today.

Right. And I guess, how much on that structural cost side. Yeah, go ahead.

Yeah. No, just one other point I think worth mentioning. I mean I think what we're acknowledging here is that this has played out in March and what we're seeing already in April right, it really is hitting us from a mix perspective hard. Our highest margin businesses are really feeling it here. I would think that on the recovery, we would see -- we would see a swing in the other way. So when we get back and come off a bottom, we should have positive mix effect really across the board, particularly in Aviation and Healthcare. Your second question, Steve it's relative to the cost actions and how much is permanent, how much not permanent?

Yeah, I know -- I guess how much is that going to cost you? I mean like to come up with $2 billion to $3 billion of cost in cash, you know you've done -- you cut your restructuring last year pretty significantly, needed a couple of hundred million in the first quarter. I mean most companies kind of one for one, what -- how much is this stuff going to cost you this year on a cash basis?

Yeah, I think what we have said previously is we were going to be down off of last year from an expense and from a cash perspective. I think we're probably going to end up more or less in line, right. Keep in mind that some of the cost actions like furloughs don't carry restructuring charge with that, right, because they aren't permanent. So part of what we're trying to do is squeeze out some of the temporary cost, but all the while, if we can -- we can make more structural moves, we want to make sure we've got room to do that, but I'd say right now assume that it will be relatively flat year-on-year, but as Carolina indicated in her remarks, we want to try to do more if we can.

Great. All right, thanks a lot. Best of luck guys.

Thanks, Steve.

From UBS we have Markus Mittermaier. Please go ahead.

Hi, good morning, Larry, Carolina and Steve, let me maybe follow up on the -- on the Aviation...

Markus, Good morning.

Hey, good morning. Within the year, so in your 10-Q, your referenced the IATA numbers of 48% RPK reduction. Is -- and then obviously it flight dollars and RPKs are two different stories. But it's not sort of -- a kind of scenario that you're playing through internally and I'm just trying to get a sense for what that would mean if we look at our sort of like '19 Aviation cash as a baseline sort of like where on that type of scenario, we could end up, particularly looking at sort of what you've mentioned in your prepared remarks that you have, I think, 62% of engine still ahead of shop visit one which arguably are the engines that are on the narrow-bodies coming back first because they're probably the youngest in the fleet. So I'm trying to get a sense for within the year how you're thinking about that.

Well, I think that given what we highlighted relative to the April experience and the near-term projection of that, there's no question that we're going to continue to see the pressure on cash at Aviation that we've seen here of late, right, and that will be our -- undoubtedly, our biggest headwind.

Sure, but you know shop visit, we heard sort of the numbers that you -- that you said, but did you do sort of internal stress tests around where you could end up with or is that just something that you'd said it's too early to comment?

No, no, no, there is plenty of planning for, again, an extended slowdown here. We're embracing this reality to the fullest extent possible. We are not expecting this to bounce back in the near term, so we flagged in the Q, the IATA numbers, we also reference others. You see it in our own departure data here in April, right. We are way down. That has a direct feed into shop visits, CSA billings and the like. So we're adapting to this new environment. Confident that it will recover, but Markus we're simply not trying to assume that the pressure abates anytime soon, witness the cost and the cash actions that we're taking.

Sure. Okay. No, I appreciate that. And maybe as a follow-up quickly on the capital side, do you anticipate any change in the capital support therefore for insurance, in particular, you've referenced that a little bit in the prepared remarks, I think $2 billion is sort of the current number. How are you thinking about that at the moment?

On the parent support to Capital on the insurance let's --yeah, let's take a step back then. So in '19, the Capital had an infusion from GE of $4 billion right and the estimate for this year is $2 billion on insurance funding and those $2 billion -- they're significantly lower than before. We estimate that the parents will need to roughly in line with this. Some variables are still open and that depends on GE Capital itself right, to GE Capital earnings, the LR2 capital and the assets liquidity level, but those gets about $2 billion as it looks now and I would also say, going forward, it is pertaining your follow-up, we do continue to anticipate further funding and that would be, again, through a combination of GE Capital itself, either asset sales, liquidity and their future earnings and on top of that possible capital contributions from GE.

Thank you.

From Cowen and Company, we have Gautam Khanna. Please go ahead.

Yeah. Thank you, good morning guys.

Good morning.

Two questions. So at Aviation, it sounds like you guys acknowledge that on the way up, the spares business, the aftermarket, the $15 billion commercial aftermarket business will lag ASM growth because of a younger fleet emerging, a surge of new serviceable material and the like part-outs and obviously lower spares provisioning as the OE rates come down 30% to 50%. I guess first question is, when do you anticipate Aviation free cash flow getting to breakeven? Is it even possible before calendar '22 in that type of environment? And then I have a follow-up.

I'm not sure we would buy into the premise per se, right. I mean we are cycles business much more so than any other indicator and those cycles are going to have to come back before the passengers do. As you indicated, the age of the fleet will help us over time. There could be some short-term headwinds, but we'll see how that plays out. I think I what we're acknowledging here is that we've been hit from a free cash perspective in our -- kind of our biggest and best cash generator at Aviation, but we're really not getting into much more in terms of the free cash forecast on a multi-year basis. It's just too soon. There's just too many moving pieces for us to be that forward leaning at this point. We wish we could be, it's just -- that's just not where we are.

Okay. And just to follow up, obviously 2020 is a tough year, we're going to have some cash burn, 2021 unclear, but certainly doesn't seem like in Aviation, we're going to have a strong recovery any -- so as we emerge from this, we're going to have, more leverage. And I guess the question is, you guys have made some asset sales to deleverage, what else besides cost reduction can you do to get the balance sheet, better, faster? Is there any other things that you guys are exploring or that you might explore that's different than what you've done over the past year? Thank you.

Well, I would -- I'm not sure I would say that there is a lot that is -- please Carolina.

Well, I was going to say that to do things that we have - couple of years.

Yeah. well, I would just say, at a high level, we are committed to our deleveraging target of less than 2.5 times on the industrial side and I think you've seen us make a lot of progress year-to-date, which I hope underscores the seriousness of that objective, both on the GE side right, I guess $7 billion of debt reductions in the quarter and at Capital I think it's up to $10 billion on a year-to-date basis, given some of the things we did in April. Clearly, it's going to take us a while longer here to hit those targets like, I suspect, most companies. But in terms of doing anything new or different I think we're going to continue to try to run these businesses as best we can, be as disciplined as we can on the capital front, be smart and thoughtful relative to some of the other obligations like pension as you've seen us relative to the plan design, and some of the settlement options. So I'm not sure they're necessarily new plays per se, but we'll continue to look at every -- and every option available to continue to strengthen the company, strengthen the balance sheet, bring those leverage levels down in the face of COVID-19. Carolina I'm sorry, I jumped in. anything to add there?

I would just add that -- to the leverage comment also the liquidity that at times like this, you do look at the liquidity and I think it's important to say that we really want to maintain a high level of cash to maximize the flexibility and you have seen the de-risking activities that we have made to sort of push out the debt into further years. So we keep optionality.

Thank you.

Yeah. And I -- but I think to that, I mean, it's just important for us all to remember we ended the quarter with $47 billion of liquidity on the back of the BioPharma action and some of the other things that we have done. So we'll continue to be nimble and flexible, mindful of our obligations and our reality.

Okay. And from Barclays, we have Julian Mitchell. Please go ahead.

Hi, good morning. Maybe just a question...

Good morning, Julian.

Good morning. And Larry, just the first question around the working capital dynamics and the free cash flow at Aviation because I guess there's a lot of industrial businesses where when you get this rapid sales downdraft, you got to working capital cash offset to an extent and then it reverses whenever the sales come back. Could you just update us on how you see the working capital cash impacts of GE Aviation sort of in the early stages now in this downturn, what you would expect to happen to working capital when things recover? And if there's any major difference on the cash dynamics of the Power-by-the-Hour type service relative to the ad hoc spares activity at Aviation.

Julian, I would say - Yeah, with respect to working capital, I think our primary challenge is really inventory at Aviation, right. We came into this year knowing we were going to have to adjust to a different schedule with the MAX chasing the step up at Airbus with the 320 Neo, while dealing with a good bit of past due on the commercial side both OE and aftermarket while having pretty good military demand to contend with that all gets reset here. And one of the real pressure that we saw from a cash flow perspective was in inventory at Aviation in the quarter. So that's where we're going to be most focused, trying to make sure that we reduce the delinquencies, adjust to the production schedules, to lower aftermarket requirements, while continuing to take care of the military business. That's a complex supply chain undertaking, but the team, as you can imagine, is keenly focused on using some of the lean tools, working with our supply base to make sure that we not only take the cost out of the business, but bring those inventory levels down in light of current demand.

But should we expect, so I guess, I understand you…

Your second part of your question, I may have missed that?

Yeah. So I was trying to understand I guess you know in Aviation, you have the drop in EBITDA in a downturn, then the recovery in EBITDA in the early part of the upturn. I was just trying to understand on working capital, is that cash impact countercyclical or is it pro-cyclical. So you're getting a working capital outflow through the downturn as well as the EBITDA decline?

I understand the high level dynamic there that you're alluding to. I think right now the simple reality at Aviation, given the pressures in the cross currents is that it is a negative and we need to work to improve it, how much of tailwind could it be kind of at this point in the cycle. I think it's too early to tell. We've got to get on the improvement path first, Julian, to be able to take that potential and deliver it in the financials as a reality.

Thank you. And then, my second question was just around the operational issues. So I think it sounds like the cost out tailwind should build through the year. But in Q1 you had some operational issues in Power on the service side, steep decrementals even with the fixed cost down 16%. Renewables, the margins were down despite a big revenue increase. So I guess, what's the conviction that operational inefficiencies will not swallow up a lot of these cost savings over the balance of the year?

Well, I think you have to take it business by business, right. If you look at what happened in Power, clearly the push out by customers, because of their own site restrictions and by us on the back of the travel restrictions really pushed a lot of high margin revenue out of the quarter and probably out of the first half. That was on top of some cost pressures of our own making which we need to improve upon. But I think, in Power, I believe that the team is doing a very nice job working off the so-called inheritance taxes, driving real cost improvements. You see that in the head count reductions here in the first quarter. And as we get to a more normalized service environment, I think you'll continue to see that turnaround continue to take flight. I think in Renewables, Julian, it's a different dynamic. Yes, we had phenomenal revenue growth in the quarter, doubled the onshore turbine deliveries here in the U.S., got a little bit of a -- little bit better price, got about a point of price, which is encouraging to see,. But, it is by nature, a very low gross margin business. So the growth is in high-calorie unfortunately. We had a few what we figure one-offs, but they're not one-off until they go away permanently cost and execution issues, all the while the turnarounds in Hydro and Grid are, I think, moving forward, but its early days and they have a number of inheritance taxes that will take a few years to work through. So I think the cost actions that we have talked about today will accelerate those turnaround in Power and Renewables they're dealing with different dynamics in their respective businesses. And that's really why I think I have the confidence to say that you should expect the decremental margin sequentially to improve. The restructuring and the cost actions should present themselves in improved decrementals in the back half, but we've got work to do to make that to make that happen.

Great, thank you.

From Wolfe Research we have Nigel Coe. Please go ahead.

Thanks, good morning everyone. And Carolina, great to see you on board. So look we appreciate all the colour in slides and additional colour in the Q. So Larry, is it now a base case that industrial free cash flow will be negative. And maybe you could just address the risk of significant cash burn this year or is there enough on the cost out and the working capital side to maybe mitigate some of that pressure and keep Industrial free cash relatively steady?

Yeah, I think what -- I think what we're trying to share this morning, Nigel, is that probably three things. One, we've been very -- we've been hit hard and fast here, right, in some of our most important highest margin businesses, be it Aviation and Services particularly Gas Power Services, PDX and Healthcare. We think that that gets worse before it gets better, particularly here in the second quarter with a full effect. It's uncertain as to how things play out from here. We're going to acknowledge that uncertainty, hence the pulling of the guide, but we're not going to sit back and hope that it all passes. We're not going to take the view that we've got a sharp re-bounce coming. Hence, the $2 billion of cost actions we've talked about and the $3 billion of cash actions. We're going to do everything we possibly can to control our destiny here without impairing the long-term value and the long-term trajectory of our company. So we're telling you what we know today. We wish we knew more, but that is really the state of play right now and the approach, the head start that we're taking to it.

Okay, I appreciate that Larry, thanks. And then, I think one of the -- one of the real highlights of the quarter was the underlying strength of the healthcare margins ex -- even ex Biopharma and especially given some of the headwinds you faced in there. So we're seeing strength in small equipments and pressure in big iron. How does that mix look though? When you look at the mix on smaller patient monitoring equipment etc. versus the big, how does that total mix play out to the margins?

Well, we certainly -- I think the key thing here to keep in mind, Nigel, is the big iron certainly got hit the lower ticket both the lower price points, be it patient monitors, ventilators and the like, certainly got quite a boost. But it's a small part of the business. So there is a little bit of mix there, but not a lot. It was really more a function, frankly, of the team doing a nice job more broadly, recognizing that absent BioPharma we needed to tend to the core cost structure in all its form in the ACS business right. We've been growing Healthcare, Biopharma leading the way. We got some good margin support from that business the last several years. Well now as we think about $17 billion core, the teams really I think put their sights the last couple of quarters on growing that business, growing it with accretive margins, and it's really the cumulative effect that I think you see a bit here in the first quarter before we got hit. They got hit a little bit later, not as much. You'll see more of that unfortunately here in the second quarter. But I think you've got a team who thinks that like many other med-tech companies, they can grow mid -- or low-to-mid single-digits over time and put more digital into the mix. Better cost that should give us the opportunity to grow with accretive margins along the lines of what Kieran laid out in December. And I have no less conviction about their ability to do that today than we did when we made that presentation. Again, mindful that we've got some gyrations here in the near term to deal with.

Right. Okay, thanks Larry. Good luck.

Thanks, Nigel.

Hey. Thanks, Nigel. We are at the bottom of the hour. So Brandon, we're at the bottom of the hour. So we can just take one more question.

Sure. From RBC Capital Markets, we have Deane Dray. Please go ahead.

Thank you. Good morning, everyone. Wishing everyone, good health then add my welcome to Carolina

Thank you.

Good morning. Just two questions, both Aviation. A lot of discussion about structural cost out and Larry, would be interested in how have you balanced the structural cost out in Aviation with reps and balancing the reps in furloughs versus how you might be compromising the ability to bounce back when it does ramp back up. So that's the first question. And then the second one, just to make sure I heard it correctly. Did you quantify the LEAP cancellations in the quarter? I know there is delivery deferrals. Our experience in 2008 was that you did not see many outright engine cancellations because customers would lose that non-refundable deposit. So what's the expectation here in terms of engine cancellations? That's it from me. Thank you.

Deane, maybe I'll take the first part of that and perhaps Carolina can take the second. I think we are mindful -- ever mindful that there will be a recovery, right. And we want to be well positioned for it. It's going to be very good business for GE for decades. But I think we are really trying to again embrace our reality and take the cost actions in the aftermarket business and more broadly at Aviation mindful that we've got a period of time here of an unknown duration, but it's not going to be measured in months, right, where that business is going to be under considerable pressure. So after a period of time as the aftermarket has grown as it has in the last decade, this is going to give us an opportunity to rethink -- to consolidate all the while mindful of our obligations to customers. The nature of how the footprint has changed, the changes that are probably still coming. So there are a number of variables. It's very much a work in progress as well, but I think we've got line of sight to build on some of the temporary actions to take permanent action to make sure that we have a lean cost structure with adequate capacity to come out of the downturn here well positioned to perform both for customers and for investors.

Thank you. We'll now turn it back to Steve Winoker for closing remarks.

Do you want me to answer the question on -- second question.

Yeah, go ahead, Carolina.

Go ahead, Carolina.

Yeah, you were right because I actually mentioned that in my, in my notes -- in our backlog, which was flat sequentially and up 22% versus prior year, that did include roughly 200 LEAP -1B unit orders cancellations in the quarter. What -- I would say on the progress, refunds are very small so far. And on top of that, we also have GECAS, right. So we have GECAS cancelation of 69 aircrafts in April. So that will be reflected in the second quarter revenues and backlog.

Great. Thanks, everybody. I know it's a long call and a busy day. So if you need more, just reach out to us and best of luck.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for joining. And you may now disconnect.