Q3 2026 GE Aerospace Earnings Conference Call - GE AEROSPACE

Explicit Guidance:

• FY2026 Revenue: Raised to 19–20% growth (previously high teens).
• FY2026 CES Revenue: Raised to low 20s growth (previously ~20%); Commercial Services growth midpoint raised by ~$400M to approx. $5.5B YoY.
• FY2026 Commercial Equipment: Raised to low 20s growth.
• FY2026 DPT Revenue: Low double-digit growth.
• FY2026 Operating Profit: Raised to $10.9–11.0B midpoint; CES OpEx raised to $10.5–10.6B (typo in transcript "106" corrected to context of $10.5B based on prior $10.25B context and $250M raise); DPT OpEx $1.6–1.7B.
• FY2026 EPS: Raised to $8.00–$8.10 (midpoint +$0.30); Tax rate expected at ~16% (down from <16.5%).
• FY2026 Free Cash Flow: Raised to $9.1–9.4B (midpoint +$200M).
• FY2027 Commercial Services Revenue: Expected low double-digit growth driven by backlog and installed base growth.
• FY2027 LEAP Shop Visits: Expected growth rate to normalize from 40%+ in Q3 to ~25–26% annually through 2030.

Business-Segment Outlook:

• CES (Commercial Engines & Services):
  • Backlog: Over $170B total; >95% of spare parts revenue in backlog entering Q4.
  • Services: Strong order momentum (Q3 +23%, YTD +30%); Spare parts orders growing faster than total services; Delinquency expected to gradually decrease as supply chain improves.
  • CFM56: Retirement rates trending 1.5–2.0% (down from 3–4% initial estimates); Shop visits expected to reach 2,400 range in 2027; PowerGen market expected to be a revenue positive via spare parts sales.
  • LEAP: Shipments up >50% YoY; Shop visits grew ~40% YoY in Q3; Turnaround times improved by 2 weeks since end of 2025; AOGs (aircraft on ground) near zero since summer.
  • Wide-Body: Removal rates low (single-digit retirements); Work scopes increasing as fleets mature (GE90 transitioning to 2nd shop visit, GE NX to 1st).
  • Margins: 2027 margins expected to hold flat with 2026 levels; Long-term margin expansion anticipated post-2028 as GE9X headwind subsides and LEAP services margins converge.
• DPT (Defense & Propulsion Technologies):
  • Backlog: Over $30B, up >$5B YTD; Book-to-bill 1.5 YTD.
  • Growth: High single-digit revenue growth expected for 2027; Profit growth of ~8% in Q3.
  • Programs: F-414 F-18 support contract awarded (5-year, $2.9B); F-143 (ex-GEK-800) designated as 2nd source for JASM; XA-102 engine selected for NGAP hardware procurement phase; F-AXX program advancing.
  • Margins: Expected to see margin expansion due to volume and price.

Market and Competitive Outlook:

• Demand Trends: Commercial airline departures up 1% in Q3; Wide-body demand particularly strong; Airline posture focused on readiness for post-pressure recovery rather than delaying maintenance.
• Supply/Part Constraints: 10+ consecutive quarters of double-digit material input growth; LEAP external channel volume up >40%; Spare parts delinquency remains a focus area but is expected to improve with supply chain fixes.
• Competitive Positioning: Largest fleet in industry (80,000+ engines); Strong moat due to long life cycles, installed base scale, and FlightDeck operational improvements.
• Airframe Constraints: Airframe order books full through end of decade; GE9X and LEAP backlogs support 5+ year visibility.

Macro / Industry Outlook:

• Fuel Prices: High fuel costs driving customer focus on durability and time-on-wing; No observed reduction in wide-body work scopes or CFM56 retirements despite pressure.
• Certification: GE9X upgraded mid-seal certification targeted by end of 2026; FAA approval required.
• Regulatory: Continued focus on FAA approval for new technologies and airfoils; Regulatory process ongoing for CPP integration benefits.
• Airlines: Expected to navigate short-term fuel/fare pressures but maintaining capacity; Departure growth anticipated in 2027.

Strategic Initiatives:

• Acquisition (CPP): Acquired Consolidated Precision Products to expand capacity for mission-critical castings; Aim to accelerate next-gen engine tech (cooling, durability) and commercialization by next summer (for approvals).
• R&D: >$3B annual R&D spend; Focus on next-gen tech for durability and efficiency.
• Capacity/Technology:
  • FlightDeck: AI-enabled tools at Selma MRO reduced record processing by 25%; Production line reorientation doubled output for F-18 readiness.
  • Hybrid Electric: Partnership with Beta Technologies completed world's first high-altitude hybrid electric flight.
  • Advanced Programs: XA-102 and F-143 (GEK-800) progressing in defense programs.
• CapEx: >$1B annual CapEx allocated to next-gen technologies.

Risks and Headwinds to Outlook:

• GE9X: $300M annual headwind in profit through 2027 due to ramp-up and certification timing; Losses expected to diminish post-2028.
• Supply Chain: Delinquency in spare parts sales remains a risk; Material availability constraints could delay backlog conversion.
• Macroeconomics: Potential future airline profitability pressure and fuel costs could impact future maintenance spend, though current backlog provides insulation.
• Certification: GE9X mid-seal certification by end of 2026 is subject to FAA approval timing.
• Mix: Customer mix shift toward long-term service agreements vs. time-and-material contracts may impact revenue recognition patterns.

Management Tone on the Future:

• Confidence: High confidence in 2026 results and 2027 outlook; Describes 2026 as "another excellent year."
• Momentum: Emphasizes "meaningful progress," "accelerated gains," and "strong results" across all metrics.
• Strategic Focus: Reiteration of "Safety, Quality, Delivery, Cost" priority via FlightDeck; Focus on "delivering for customers" and "lowering cost of ownership."
• Guidance Change: Proactive raising of FY2026 guidance across revenue, profit, and FCF due to stronger-than-expected YTD performance and Q4 visibility.

Miscellaneous:

• Farnborough Air Show: 1,800+ engine commitments; Largest LEAP agreement with IndiGo (>1,000 LEAP-1A engines); Turkish Airlines agreement for >300 LEAP-1B engines + 600+ engine service agreement.
• Share Count: Reduced via capital allocation actions, contributing significantly to EPS growth.
• Work Scopes: Wide-body work scopes increasing; LEAP work scopes expected to grow as fleet matures from quick turns to first/second shop visits.
• Turnaround Times: LEAP turnaround down by 2 weeks since end of 2025; Internal shop visits down >1 week since end of 2025.