AeroEdge Co.,Ltd Q4 FY2025 earnings call

• Core Business Status
  • Core business is mass production of titanium aluminide blades for the LEAP engine (used in A320neo family, 737MAX, C919), with AeroEdge holding 40% global market share and a long-term contract through 2034.
  • 2025 June fiscal year overall revenue hit an all-time high of 3.6 billion yen, a 7.5% YoY increase; operating profit was 650 million yen (7.1% YoY decrease), which beat the initial forecast of 500 million yen; net profit was 730 million yen (4.7% YoY increase), driven by deferred tax asset recognition that reduced the corporate tax burden.
  • The company secured a 2 billion yen subsidy from the Ministry of Economy, Trade and Industry, completed 3.3 billion yen in refinancing, and is expected to sign a new material supply contract with SAFRAN for LEAP blades.
• New Project Progress
  • Aero Engine Part A (for non-LEAP engines, customer outside SAFRAN): Mass production was originally scheduled to start in H1 2026 June fiscal year, but will be delayed to H2 due to customer-side contract renewal delays; AeroEdge's production progress is on track.
  • Aero Engine Part B (for non-LEAP engines, customer outside SAFRAN): Total planned investment of 1.7 billion yen, ~half covered by subsidy; core technical development is mostly complete, mass production is on track to start in H2 2026 June fiscal year, progressing as planned.
  • New Titanium Aluminide Material (in-house production for LEAP blades): Development is progressing well; the material is closer to final blade shape than existing materials, enabling flexible production, lower CO2 emissions, reduced processing cost, and additional material profit. Phase-in production will start from 2027 June fiscal year, full conversion to in-house material supply for the company's entire share by 2028, with full conversion on an annual basis by 2029 June fiscal year. AeroEdge will be the first company in the world to achieve integrated production from material to processing for LEAP titanium aluminide blades.
• Market Environment
  • A320neo family has over 7,200 unfulfilled orders (12 years of production), 737MAX has over 10 years of unfulfilled orders even after accounting for recent production disruptions; high unfulfilled backlog for both models supports long-term growth demand for blades.
  • LEAP engine deliveries grew 38% YoY in Q2 2025, indicating accelerating production after resolving earlier component bottlenecks.

1. LEAP Titanium Aluminide Blade (Processing): 2025 June fiscal year processing revenue was 3.4 billion yen, accounting for ~94.4% of total company revenue. The number of engines with AeroEdge blades sold increased 11.5% YoY to 639 units, with growth limited by 737MAX production disruptions. For 2026 June fiscal year, processing revenue is projected to increase 21.6% YoY to 4.13 billion yen.
2. Other New Segments (Aero Engine Part A, Aero Engine Part B, Other Revenue): 2025 June fiscal year other revenue was 190 million yen, accounting for ~5.6% of total company revenue. For 2026 June fiscal year, other revenue is projected to jump ~300% YoY to 790 million yen, driven by new mass production of A and B parts and contracted development revenue for new materials. Aero Engine Part B has a larger projected sales scale than Part A, and the two combined are targeted to add 0.3 billion to 0.5 billion yen in operating profit by 2027 June fiscal year.

• 2026 June Fiscal Year (FY2026) Projections:
  • Revenue: +36.9% YoY to an all-time high of 4.93 billion yen, factoring in headwind from projected yen appreciation.
  • Operating profit: +23.6% YoY to an all-time high of 810 million yen, with lower growth than revenue due to increased upfront investment in personnel and capacity for new material and new projects.
  • Net profit: -31.9% YoY to 500 million yen, due to higher corporate tax burden after the one-off deferred tax asset benefit in FY2025.
  • Titanium aluminide blade engine unit sales: +27.5% YoY vs FY2025, upward from the prior forecast of 10-15% growth.
  • Depreciation: +1.8 billion yen YoY to 5.7 billion yen; headcount: +48 employees to 224; R&D expense: -700 million yen YoY to 1.2 billion yen.
• Medium-term Projections:
  • 2027 June Fiscal Year: Titanium aluminide blade engine unit sales to grow 45-55% vs FY2025, upward from prior forecast of 40-50% growth; Aero Engine Part A and B will contribute full-year profit in 2027, achieving 0.3-0.5 billion yen in incremental operating profit.
  • Market share for LEAP titanium aluminide blades will increase from current 40% to the high 40% range starting 2028, with an upper volume limit in place through 2030 that will be removed after 2031.
  • New materials will start contributing meaningfully to profit from FY2029 after capacity investment is completed.

• Industry-level risks: Persistent post-COVID supply chain disruptions continue to impact Airbus and Boeing production rates; 737MAX still faces residual quality issues and regulatory constraints that can delay production expansion.
• Project execution risks: The new material mass production build-out is AeroEdge's first experience in titanium aluminide casting, with a relatively tight timeline, creating execution uncertainty.
• Resource constraints: Simultaneous execution of multiple new projects (new material, A part, B part, share expansion) requires rapid headcount growth and new factory site selection, which creates operational and capacity constraints; headcount growth in the company's regional location is particularly challenging.
• Market risks: US tariff policy uncertainty, though management judges direct impact to be zero (all sales to French SAFRAN, no direct US shipments) and indirect impact to be limited due to the duopoly structure of the large commercial aircraft market.
• Financial risks: Upfront investment for new capacity and share expansion will total tens of billions of yen, though management judges existing cash, subsidy, operating cash flow and available debt capacity are sufficient to cover needs without equity financing.

Q: What is the outlook for 737MAX production recovery? / A: After falling to 22 units per month in 2024 due to quality issues and strikes, average monthly deliveries recovered to 34 units in H1 2025, and hit the pre-disruption level of 38 units in May 2025. Boeing targets 5 additional units of monthly production increase every six months once 38 units per month is stabilized. AeroEdge sees high probability of continued production increases going forward, which will flow through to higher blade sales.

Q: What drives the gap between airframe production counts and AeroEdge blade sales counts? / A: There are two core reasons. First, there is a lead time between AeroEdge delivering blades and airframe manufacturers completing final aircraft production, so AeroEdge ramps up production ahead of airframe production increases. Second, blades are also sold for spare engines and MRO replacement parts, so total sales are naturally higher than the volume required for new aircraft production alone.

Q: When will the new titanium aluminide material start contributing to profit? / A: Gradual production will start in July 2026, with full market share production starting in January 2028. Through December 2027, investment in building out capacity will offset initial revenue gains, so meaningful profit contribution is not expected until the 2029 June fiscal year and beyond.

Q: What are the key priority challenges from rapid growth, and how is AeroEdge addressing them? / A: The top challenge is hiring enough personnel to match the pace of growth, followed by securing new factory locations for additional capacity, while executing multiple large projects on a tight timeline. Management frames these as positive, growth-driven challenges, and is addressing hiring by expanding outreach outside the local region and actively recruiting international talent.

Q: How will future investment for new projects and share expansion be funded, and is equity financing needed? / A: Total future investment is expected to be in the tens of billions of yen, currently under final review. AeroEdge has 1.57 billion yen in cash on hand, over 1 billion yen in projected subsidy revenue in FY2026, unused committed credit lines, and over 1 billion yen in annual operating cash flow. Management judges no equity financing is needed at this point, and any remaining funding gap will be covered by debt financing.