GE Aerospace Q3 FY2025 earnings call

• FLIGHT DECK model is how GE Aerospace turns strategy into results, with third quarter and year-to-date results demonstrating its action.
• Orders up 2% in third quarter with commercial services growth, year-to-date orders up 13% with services up 31%. Revenue grew 26% and profit was $2.3 billion, up 26% in third quarter.
• In CES, services demand robust with orders up 32% and services revenue up 28%, total CES operating profit growth 35% year-on-year. In DPT, delivered solid results with higher output supporting revenue growth 26% and profit up 75%.
• Key wins: Korean Air announced largest fleet commitment with 103 Boeing aircraft powered by GEnx, GE9X and LEAP-1B engines plus long-term services; Cathay Pacific committed to GE9X engines for 14 additional 7779s.

In Commercial Engines and Services (CES), orders were up 5% in the quarter, with services up 32% and equipment down 42% due to timing of some wide-body and regional orders shifting. Revenue was 27% with services up 28%, internal shop visit revenue grew 33% from higher volume, wide-body work scopes and price. Spare part sales were up over 25% as improved material availability supported increased output. Equipment revenue grew 22% with engine deliveries up 33%, including LEAP up 40%. Profit was $2.4 billion, up 35%. For Defense and Propulsion Technologies (DPT), orders were down 5% due to timing across quarters. Defense book-to-bill remained above 1 in the quarter and is 1.2x year-to-date. Total DPT backlog is at $19 billion, up $1.5 billion year-over-year. Revenue grew 26% in the quarter. Defense and Systems revenue was up 24%, driven by higher engine volume, up 83% year-over-year and improved pricing. Propulsion and Additive Technologies grew 29%, with all businesses growing over 20%. Profit of $386 million was up 75% year-over-year.

• Raise full year guidance across the board. Expect revenue to grow high teens, CES growth low 20s, DPT growth high single digits. Operating profit expected to be in the range of $8.65 billion to $8.85 billion, CES operating profit in range of $8.45 billion to $8.65 billion, DPT profit in $1.2 billion to $1.3 billion range. EPS guidance raised to $6 to $6.20, free cash flow guidance to $7.1 billion to $7.3 billion.

• Supply chain material availability still has challenges with fits and starts in problem solving. Need to continue efforts to improve LEAP turnaround times. Defense business may face inflation and other operational uncertainties.

Q: Maybe if we could peel back the layers behind the services outperformance up 25% year-to-date, which is pretty phenomenal. And on a dollar basis, up $750 million sequentially, Q3 versus Q2. So how much of that is pure volume unlock through FLIGHT DECK in the supply chain versus tariff price surcharges or any other factors that you would say play into it? And why the step down sequentially in Q4?

A: Yes. Sure, let me start. So I agree with you, we had a really strong quarter on services. We were expecting high-teens growth for the year and year-to-date results; we are at about 25%. So now we've raised the outlook for the year to be low to mid-20s growth. And the improved outlook is both in our shop visit revenue and in the spare parts. So a lot of that from the strength that we observed in the third quarter. So if I start with the shop visits, we've had year-to-date growth of, call it, 22%. And what's driving that, as you hinted at, is improved material availability is driving higher volumes. So that's a big piece of that. But along with that, the work scopes continue to increase, so that's helping as well. And the demand environment just continues to be strong. I mean, year-to-date, our inductions have outpaced output even with the results that we have delivered. And this improvement in output is especially visible in LEAP, that is up 30% year-to-date, and part of that is the incremental capacity that we've set up for LEAP. On the spare parts, the year-to-date results have been equally strong, growth of more than 25%. Orders have remained strong. As Larry mentioned, our orders -- services orders growth of greater than 30% year-to-date, but the improved material availability is now helping us achieve those orders and execute on the demand that we are seeing. And as we look at the fourth quarter, our backlog still remains strong, 90% of the spare parts that we need to ship in the fourth quarter are in the backlog, which is 15 points higher than where we have been historically. So really strong external LEAP shop visits up 2x is helping mid-single-digit growth in total worldwide shop visits in CFM56 is helping. So all that. So again, as we look at that, it set us up for really well, not only for 2025, but also for '26. Now as we think about the fourth quarter, we typically have a seasonal step down in our third quarter to fourth quarter revenue, largely driven by spare parts because you don't expect the same level of improvement on material availability, a little bit of seasonality in demand. So -- but still, if you step back and look at the full year, really strong year and -- versus where we were in July, more than $1 billion of revenue increase in the services revenue, and that's a large part responsible for the incremental $450 million of guidance raise on profit for CES.

Q: You've been talking about the improvement in margin -- the margin outlook for LEAP on the services side to get up to sort of services overall margins once you get out to 2028. Now that's a strong trajectory. But could you talk about how you have plans -- what gives you confidence in that because you're still in the very early days of PRSVs and I would expect really understanding what the cost is for full shop visits. So how do you think about that 2028 LEAP services margin? And how does price and cost factor in?

A: Doug, I would say that the road map to 2028 with respect to LEAP really is something that we're looking to manage every day, really a combination of the field performance that you spoke to. And frankly, what we're doing in our own operations with FLIGHT DECK to make sure we not only have the material availability, the improvements of which you see here in the third quarter financial results, but also in the underlying operational data points that Rahul just mentioned a moment ago. As we project that forward, I think we've been making the improvements in the supply base in the field performance witness the durability kit with the 1A that's now in the field, very much -- and the cost reductions as well, be they productivity, which material availability will really does unlock in our shops, very much in line with our expectations. So there's a lot of work to do between now and 2028, but I think given the multiple levers that we have to pull and the underlying product improvements that we have the conviction not only behind the strength of today's results, but the road map from here, both in terms of the eyes of investors, as you just framed it as well as customers. Rahul, anything you'd add there?

A: Just -- Larry, just maybe a couple of things to add here, Doug. Larry spoke about the FLIGHT DECK improvement. We spoke about all the improvements that we are driving this year in LEAP output. As we see us ourselves to 2030, we expect this 30% year-over-year internal shop visit growth to continue, right? So that the volume is going to be a big piece of that. And as you think about the external channel, we spoke -- I think Larry spoke earlier in his prepared remarks about the external channel being up 2x year-over-year. I mean, that drives -- that unlocks the spare parts revenue stream for us. So that's helping. We also spoke about the investments that we are making on repair technology. That reduces the cost of the shop visit in addition to unlocking our shop visit output. So all those things are helping. And durability is kind of hanging in there. I think with the introduction of the durability kit, we are very confident of getting to CFM56 levels of performance on LEAP-1A, and then soon on 1B as we look forward through 2028. So all those things are what gives us confidence about the trajectory that we have on LEAP.