In spinning off General Electric’s railroad business, CEO John Flannery is taking the biggest step yet toward creating a leaner, more focused GE.

GE’s railway business will be combined with Wabtec Corporation, a U.S.-based equipment manufacturer for the rail industry. It generated $3.9 billion in revenue last year. The GE unit is a leading manufacturer of locomotives for freight trains, with sales of $4.2 billion in 2017. GE will receive $2.9 billion in cash and a 9.9% stake in the combined company. Raymond Betler, Wabtec’s CEO, will serve as Chief Executive. Wabtec and GE executives say the combined company will be stronger, have a broader mix of rail operations, and become a Fortune 500 corporation.

Flannery’s stated goal, since becoming Chief Executive of General Electric in August 2017, has been to make the sprawling industrial conglomerate a “simpler, leaner” company and improve its financial performance. Months after taking the helm, he outlined a plan to focus GE on three core businesses: aviation, power generation, and healthcare. His plan also called for selling $20 billion in assets, including the transportation and consumer lighting units. GE sold about $4 billion in smaller assets prior to the spinoff deal with Wabtec, valued at about $11 billion.

The railway unit is the first entire business to be shed under Flannery’s leadership and, he has indicated, it will likely not be the last. According to the New York Times, “The company’s jet engine business is thriving. Its healthcare unit, which makes medical imaging equipment and life sciences technology, is doing well.” However GE’s power generation business, GE Power, is undergoing a lengthy turnaround, having produced too many power turbines amidst softening global demand for electricity generation. Analysts now say both the power generation and healthcare businesses could potentially be spun off.

Analysts have also suggested that the Wabtec deal could serve as a template, according to which GE gets the needed cash infusion, and holds a stake in the combined business. “This could be telling of the Flannery strategy – find partners instead of outright selling businesses,” said Scott Davis, Chief Executive of Melius Research, a financial analysis firm.

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