GE Aerospace Q2 FY2025 earnings call

• Safety is foundational: GE Aerospace has Reactive, Proactive, and Predictive safety processes, with a Safety Management System (SMS) accepted by the FAA. They're enhancing engine inspections with AI-enabled tools.
• FLIGHT DECK model: A systematic approach to running the company, translating strategy into outcomes. Examples include improving turnaround times at MRO sites like Celma, Brazil, and deploying AI-enabled Blade Inspection Tool.
• Key deals: Qatar Airways deal for over 400 GEnx and GE9X engines, IAG agreement for 32 Boeing 787 aircraft powered by GEnx, and U.S. Air Force $5B contract for F110 engines.
• R&D investment: Approximately $3 billion in 2025, 6%-8% of revenue, focusing on enhancing platforms and inventing future flight technologies like composite fan blades and CFM RISE program.

GE Aerospace has two main segments: Commercial Engines & Services (CES) and Defense & Propulsion Technologies (DPT). In the second quarter, CES delivered an excellent quarter with demand remaining robust. Orders for services were up 28% and equipment up 26%. Service revenue was up 29%, with spare parts revenue up more than 25% from higher volume and price. Internal shop visit revenue grew more than 20% from higher output, increased work scopes and price. Equipment revenue grew 35%. DPT had higher output supporting a solid quarter. Orders were up 24% year-over-year with defense book-to-bill of 1.2x. Revenue grew 7%, with Defense & Systems up 6% and Propulsion & Additive Technologies up 9%.

• 2025 guidance: Raised total revenue growth to mid-teens, commercial services revenue to high teens, commercial equipment to high teens to 20%, total operating profit $8.2B to $8.5B, adjusted EPS $5.60 to $5.80. Free cash flow expected $6.5B to $6.9B.
• Longer-term outlook: Expect double-digit revenue growth 2024-2028, profit ~$11.5B in 2028, free cash flow ~$8.5B, driven by growing installed base, services growth, and operational leverage.

• Macroeconomic dynamics: Near-term demand could be affected by broader economic conditions.
• Tariffs: Heightened tariffs result in additional costs, offsetting through cost controls and pricing actions.
• Supply chain constraints: Material inflation remains elevated, but pricing actions aim to offset impact.

Q: Rahul, the high end of the 2025 guide implies second half EBIT nearly $500 million lower than the first half. How to reconcile this?

A: Rahul Ghai said it's due to overperformance in the second quarter, raising expectations for the second half, including factors like OE ramp, spare engine ratio, corporate expenses, and R&D step-up in the second half.

Q: Myles Walton asked about pricing assumption through 2028 and retirement step-up. Larry Culp responded on pricing being mid-single-digit net, and Rahul Ghai discussed retirements trending up as fleets age but dependent on aircraft deliveries and departure growth.

Q: Sheila Kahyaoglu inquired about LEAP aftermarket profitability. Rahul Ghai said LEAP service profitability is progressing, with fixed cost utilization, pricing, aftermarket channel growth, and repairs driving improvement towards CFM56-like margins.

Q: Doug Harned asked about confidence in projecting LEAP margins. Rahul Ghai clarified LEAP service margins should equal overall service margins, with improvement in durability, long-term service agreements, and execution of FLIGHT DECK model.