(Bloomberg Opinion) –A once mighty engine of profit for Siemens AG and General Electric Co. isn’t dead just yet, but the business will remain a ghost of its former self.

The market in question is gas turbines, equipment that sits at the heart of natural gas power plants and helps to generate electricity. A glut of capacity and the reduced cost of renewable energy tanked demand for these engines, sparking years of painful slides in profitability and massive rounds of cost-cutting. Recently, though, orders have started to perk up modestly; regions such as China are converting to gas from coal or nuclear power, while elsewhere there is a growing recognition that the flexibility and reliability of turbines gives them a role to play even in a world tilting increasingly toward alternatives. In what may be a nod to this recent improvement, Siemens CEO Joe Kaeser told Bloomberg News this week that the company may keep only a 25% stake in the struggling energy unit it plans to spin off. That would constitute a more extensive break than what was envisioned when Siemens announced the overhaul in May with the intention of retaining a “somewhat less than 50%” holding — seemingly a bet that the apparent bottoming in demand will entice more support from the public market.

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Indeed, Siemens saw a 9% increase in comparable orders in its gas-and-power division in the fiscal fourth quarter and said its market share in large gas turbines held roughly steady in 2019. Deutsche Bank AG analysts led by Gael de-Bray this week outlined a path for a 20% recovery in Siemens gas turbine orders to 10 gigawatts annually. The analysts acknowledge this is an out-of-consensus view, but even GE, the poster child for gas power woes, has seen business come in better than expected. Year to date, GE logged gas power orders of 12.8 GWs, compared with 7.2 GWs in the same period in 2018, Chief Financial Officer Jamie Miller said on the company’s third-quarter earnings call. That adds support to CEO Larry Culp’s optimism that overall market volume may exceed GE’s dire forecast of just 25 to 30 GWs at the beginning of the year.

This recent stabilization in demand is encouraging, but the question isn’t just whether companies can attract orders, but whether they can deliver them and any associated maintenance work profitably. The Deutsche Bank analysts estimate the Siemens Energy spinoff (which includes a 59% stake in Siemens Gamesa Renewable Energy SA) can reach its goal of doubling its adjusted profit margin to about 8% by 2021, a reflection of growth in more profitable service work and targeted cost savings of 700 million euros. Progress is progress, but it should be noted that an 8% margin isn’t exactly blockbuster profitability, and that number reinforces the idea that there is a more structural shift in the power market that will keep a lid on further improvements.

GE, for its part, has said fixed costs are down 9% year to date in the gas power business, although it has also pushed out some restructuring work, in part because negotiations in Europe are taking longer than expected. Its own gas-power service revenue has declined in the past three quarters. Even so, Melius Research analyst Scott Davis has argued there’s no structural reason that margins can’t return to the mid-teen levels of yesteryear. He bases this in part on the idea that Siemens, as its top competitor, cares deeply about boosting its own margins and that will help keep pricing rational. In response to that, I would point you to the other power market news making the headlines this week: Mitsubishi Heavy Industries CEO Seiji Izumisawa is leaving the door open to a combination or collaboration with Siemens’s power business once it’s carved out. Siemens had reportedly been in talks to merge the gas-turbine business with Mitsubishi before deciding to go ahead with the spinoff instead. “We do have a good relationship with Siemens,” Izumisawa said in an interview at Bloomberg Headquarters this week. “I will not deny the possibility that we could possibly work with them.”

Such a move would substantially shift the competitive landscape, and it’s far from clear that Mitsubishi would have the same discipline if it was in charge of the pricing for Siemens’s new units and service agreements. Asked whether market share or profitability was more important amid weak demand for turbines, Izumisawa said that the most important thing was for the business to make money and generate value for shareholders, but within that, there’s an understanding that after-market services are responsible for most of the profit in the gas turbine business. That gives the company an interest in making sure it’s delivering a consistent number of units, he said. While Izumisawa said the Siemens spinoff doesn’t directly affect Mitsubishi’s business strategy, he acknowledged competition is only getting tougher. Siemens’s Kaeser has spoken about the likelihood that China will want its own national champion to capitalize on an expected boom in gas power demand as the country converts from coal. To that end, Izumisawa touted the productivity and reliability benefits offered by Mitsubishi’s high-efficiency J-series turbines as a tool for luring customers. The company’s estimate of greater than 64% efficiency for that product exceeds the 62.2% for GE’s 9HA turbine, and Mitsubishi is working to further expand that lead with its next generation turbine, Gordon Haskett analyst John Inch wrote in a June report. Here I will remind you that GE has cut R&D at its power unit substantially over the past few years.

Point being, demand may be stabilizing, but the market is only getting more competitive.

LEAKING FUEL

Some worrying signals for the aerospace market emanated from the Dubai Air Show this week. Emirates trimmed order commitments for both Boeing Co. and Airbus SE jets, with the reductions adding up to $24 billion at list prices. Big aircraft like Boeing’s 777X are falling out of favor as weakening demand and fare competition sparks concern about airlines’ ability to fill the planes profitably. Emirates will take 126 777X jets, including six orders for older models that were upgraded to the newest version, and 30 of Boeing’s smaller 787 Dreamliners. All in, that’s 40 fewer planes than planned. The airline upped its order for Airbus’s A350 wide-body jet, but seemingly scrapped a commitment for 40 A330neos that was part of the original deal, resulting in a net loss.

A bright spot was Airbus’s longer-range A321 XLR model. Boeing’s counter to that, a potential new middle-market aircraft, remains a question mark amid the continuing crisis engulfing its 737 Max. The more orders Airbus is able to rack up in the meantime, the weaker the business case for that Boeing jet. Airbus is already moving on: The manufacturer talked about developing a narrow-body jet by the end of the 2020s if key technologies are available, likely kicking off a new front in the arms race with Boeing, notes Bloomberg Intelligence’s George Ferguson. The MCAS software system blamed for the Max’s two fatal crashes was installed to make up for the fact that the existing 737 model infrastructure was less adaptable to more fuel-efficient engines. Clean-sheet development programs like the one Airbus is contemplating won’t come cheap and the fact that the planemakers’ are considering them speaks to a potentially more structural shift away from wide-bodies in the current demand environment.

DEALS, ACTIVISTS AND CORPORATE GOVERNANCE

Thyssenkrupp AG’s plan to sell off its prized elevator division got more complicated this week. The company plunged the most since 2000 on Thursday after warning that a deepening cash crunch would force it to suspend dividend payments. Selling off the entire elevator business – whose exposure to the growing urbanization trend makes it a rare bright spot for Thyssenkrupp – would bring in much needed cash to fund restructuring for the remaining steel, submarines and industrial businesses. But that would also deprive Thyssenkrupp of its top source of cash flow should the turnaround plan fail to gain traction. Binding bids for the elevator unit are due in mid-January, people familiar with the matter told Bloomberg News. Rival Kone Oyj has partnered with private equity firm CVC Capital Partners for a bid and has reportedly offered a sizable breakup fee to help convince Thyssenkrupp to put aside antitrust concerns. Also in the running are a consortium of Blackstone Group Inc., Carlyle Group LP and Canada Pension Plan Investment Board; an Advent International, Cinven and Abu Dhabi Investment Authority team; Brookfield Asset Management; Asian private equity firm Hillhouse Capital, whose connection to China may also draw scrutiny; and 3G Capital, which is better known for its troubled food investments.

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Cobham Plc’s planned sale to Advent International advanced a step this week after the U.K. government said it was likely to accept remedies designed to address national security concerns over the $5 billion takeover of a military supplier. The deal still risks being caught in the political crossfire with a final ruling not expected to come until Dec. 17, five days after the U.K. general election. The opposition Labour Party has taken a dim view of the deal amid a spike in foreign acquirers taking advantage of the pound’s Brexit-fueled weakness. The deal has few benefits for Britain, but a block on purely protectionist grounds would set a bad precedent, as my colleague Chris Hughes has written. “If the U.K. merely rues that Cobham is worth more in U.S. hands, it should instead ask whether past industrial policy is to blame and learn the lessons,” Chris writes. Approval likely comes with some strings, though, including job commitments and potentially an agreement to keep Cobham’s headquarters in the U.K.