IF YOU are reading this article while on a short-haul flight, the chances are your aircraft's engines were made by CFM International, an unusual yet durable industrial alliance. It is a joint venture between General Electric (GE), the world's most successful conglomerate and a standard bearer of raw Anglo-Saxon capitalism, and Snecma, which was until recently a French state-owned enterprise. CFM's engines power 71% of the world's fleet of single-aisle aircraft of 100 seats and over. GE competes with Rolls-Royce and Pratt & Whitney in the market for the huge engines that power jumbos and other long-haul, wide-bodied planes. But Boeing 737s and the Airbus A320 family, the workhorses of aviation, constitute the largest market for engines.
The joint venture between GE and Snecma began in 1974. Both companies were anxious to expand beyond mostly military customers into the growing civil business, dominated at the time by Pratt & Whitney. The technological leader, it had the bestselling engine for single-aisle planes and saw no need to collaborate with anyone. Snecma decided against linking up with Rolls-Royce after a failed collaboration on Concorde engines. That left GE, which was anxious to get close to Airbus, Europe's then-nascent aircraft consortium, which had been founded in 1970. The result was CFM.
An old military airfield on the edge of the forest of Fontainebleau is home to the European element of this odd pairing; the American component is based in GE's aero-engine division in Cincinnati. Despite a huge disparity in size, the two firms operate their joint venture on a simple and equitable basis. In both factories, the core module of the CFM engines (a GE design originally developed for fighter aircraft) is married to a French front fan and low-pressure turbine. Each partner is responsible for the research, design and production of its modules. When their collaboration began, the two companies' first task was to convince the American government to allow the sharing of GE's military technology with the French—something it is normally reluctant to do.
CFM then struggled for five years to find a single customer. It got lucky when its CFM56 model became the engine of choice on the Boeing 737. By the mid-1980s, Pratt & Whitney's market share was sliding and it was forced to join a consortium, called International Aero Engines (IAE), with Rolls-Royce and three Japanese firms to produce an engine to compete with CFM's runaway success (see chart). Despite head-on competition from IAE, sales of the CFM56 are growing by 20% a year and CFM has a backlog of orders. EasyJet, a British low-cost airline, has just placed an order worth more than $700m for engines to power 52 Airbus A319s.
Snecma has had a bumpy ride since being privatised three years ago. In one of those bewildering moves so typical of France, it was privatised and then merged with Sagem, a communications-equipment firm. There was no obvious industrial logic to the pairing, and there have been endless boardroom battles, which got much worse when an embarrassing hole in Sagem's accounts briefly pushed the merged group into the red last year. Yet amid the turmoil, Snecma's underlying business has prospered thanks to its partnership with GE.
Many companies set up joint ventures and other kinds of alliances, but few have one that is central to their entire business. Even the successful Renault-Nissan partnership is anchored in big cross-shareholdings. GE and Snecma share nothing but engine parts and sales. They split the proceeds roughly 50-50, based on notional costs, but neither has information on its partner's real costs. That way each has an incentive to be efficient, because each is responsible for its own bottom line. Jet engines may be awesomely complicated machines worth millions of dollars each. But the secret to making them successfully seems to be to keep it simple.