GE Aerospace

Good day, ladies and gentlemen, and welcome to the GE Aerospace first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Blair Shore from the GE Aerospace Investor Relations Team. Please proceed.

Thanks, Liz. Welcome to GE Aerospace's first quarter 2025 earnings call. I'm joined by Chairman and CEO Larry Culp and CFO Rahul Gai. Many of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and website, those elements may change as the world changes. Additionally, Larry and Rahul, consistent with prior quarters, will speak to total company and corporate financial results and guidance today on a non-GAAP basis. Larry, over to you.

Larry, thanks, and good morning, everyone. While a lot has happened since January, we at GE Aerospace remain focused on our purpose. Our team works daily to invent the future of flight, lift people up, and bring them home safely. Those last four words ring true to us, given right now there are nearly a million people in the sky with our technology under wing. This is an incredible responsibility and one that we take very seriously. With safety at our core, we're advancing our vision to be the company that defines flight for today, tomorrow, and the future. Today, we're focused on service and readiness, keeping our customers' fleets flying, For tomorrow, we're delivering the ramp and executing our $170 billion plus backlog. And for the future, we're advancing the technology that will define the future of flight across both commercial and defense with approximately $3 billion in annual R&D spending. Flight Deck, our proprietary lean operating model, is how we translate that strategy into results. Launched a year ago, we're activating FlightDeck to deliver for our customers and create long-term value for our shareholders. Turning to the first quarter, GE Aerospace delivered a strong start to the year. Orders were up 12% and revenue grew 11%, with double-digit growth in both services and equipment. Profit was up $2.1 billion, up 38%, with contributions from both segments leading to margins of 23.8%. Overall, we delivered $1.49 of EPS, up 60% year-over-year, and free cash flow was $1.4 billion. In commercial engines and services, or CES, we're servicing and growing the industry's most extensive commercial installed base. Services strength continued, with orders up 31% and revenue up 17%, driving total operating profit growth of 35% year-over-year. In Defense and Propulsion Technologies, or DPT, we're improving the delivery of our leading defense programs while developing mission-critical technology. The first quarter was solid, with defense units growing 5% and profit increasing 16%. My thanks go out to all of our 53,000 employees around the world for delivering, once again, for our customers. Moving to slide five. GE Aerospace supports efforts to revitalize domestic manufacturing, and it's why we're investing a billion dollars in U.S. manufacturing this year and hiring over 5,000 U.S. workers. At the same time, we support promoting free and fair trade that ensures the continued strength of the U.S. aerospace industry. Our industry has a nearly $75 billion trade surplus, the highest trade balance of any sector, and exports more than $135 billion of products each year. This is possible because the global aviation sector has long operated without tariffs on civil aircraft, engines, and avionics. As the US administration engages in discussions with its trade partners, we'll continue to advocate for an approach that reestablishes zero-for-zero tariffs in the aviation sector and ensures a level playing field for the US aerospace industry. In the meantime, Heightened tariffs will result in additional costs for us and our supply chain. We're leveraging available programs the administration is providing businesses, such as duty drawbacks, along with other strategies to optimize our operations, like expanding foreign trade zones. With those actions, we expect to reduce the tariff costs to roughly $500 million. We're taking additional actions to offset this remaining impact. This includes controlling costs while maintaining investments in key priorities and pricing actions. Departures remained favorable in the quarter, up 4% in line with our expectations. Given strong orders growth over the last several quarters, our commercial services backlog has grown now to over $140 billion. We've had a lag in converting those orders to revenue given the broader supply chain dynamics. Our spare parts delivery continues to increase, unfortunately, up over two times year over year. And our internal shop visit slots are full, with a healthy pipeline of engines which have been removed but not yet inducted into our shops. So far, second quarter departures are shaping more or less in line with the first quarter. We're taking a more cautious approach and embedding a slower second half in our estimate, resulting in departures up low single digits for the full year. This includes a reduction in North American departures, which make up about 25% of the total. So to step back, while the broader environment is certainly uncertain, we are watching demand closely, and we're operating from a position of strength. The actions we're taking, combined with our robust backlog, position us well to maintain our full-year guidance. Shifting to slide six. We're focused on meeting the aftermarket NOE ramp to deliver for our customers. Demand continues to outpace supply, and we're utilizing Flight Deck to tackle supply chain constraints head on. In the first quarter, material input at our priority supplier sites was up 8% sequentially, which supported CES services revenue up 17% year over year. While defense units were a bright spot, up 5%, total engine units were down 6%, with LEAP down 13%. This was lighter than we expected from the slower start to material inputs in January and the lead times to complete new engines. We drove significant improvement in material input in February and March, giving us confidence that we will accelerate output in the second quarter. In partnership with our suppliers, we're leveraging flight deck to deliver. Our priority suppliers continue to improve shipments against their committed targets, which increased both year over year and sequentially. In the first quarter, they delivered shipping more than 95% of their committed volumes. Our new technology and operations organization has hit the ground running. In March, we hosted a supplier symposium to share our near and longer-term growth outlook across both services and OE. This helps our suppliers with required transparency and stability they need to make critical investments to support the ramp in a forum for discussing key challenges in doing so. Importantly, we know these joint efforts with our suppliers work. Last quarter, we shared that a joint Kaizen with one of those priority suppliers achieved a 50% increase in output in just one week. Now, at the end of the first quarter, the same team has delivered a 3x increase quarter over quarter. Additionally, LEAP remains an important growth area, with the fleet expected to more than double by the end of the decade. We're continuing to expand capacity to support aftermarket demands, LEAP external shop visits grew over 60% in the first quarter, demonstrating the rapid growth in the third-party network. Also, all engine shipments to Airbus now incorporate the durability kit, including the upgraded HPT blade, which was approved back in December, and it enables the LEAP 1A to achieve CFM56 levels of time on wing. We're also shipping those same blades to MRO shops to support upgrades of the existing fleet. The upgraded HPT blades incorporate a simpler design, requiring less capacity, improving process yields, and ultimately supporting higher output, critical additional benefits that will support achieving the 15% to 20% growth in LEAP deliveries we expect in 2025. We're already seeing improvement in our overall output through April and remain confident we'll accelerate in 2025 and longer term. Turning to slide 7. In the first quarter, we saw continued demand for both our services and products. At CES, we secured multiple agreements for our customers' growing fleets. We secured engine commitments from ANA for both our narrowbody and widebody platforms. They selected LEAP and GENX engines to power 13 A321 NEOs up to 22 737 MAXs and 18 787-9 aircraft as part of their fleet upgrades. Additionally, we received a commitment from Malaysia Aviation Group for 60 CFM LEAF engines plus additional spares to power 30 Boeing 737 MAX aircraft. And in the wide-body segment, Korean Air announced an agreement for up to 30 Boeing 787-10s and 20 777-9s with our GENX and GE9X engines under wing. In DPT, defense budgets are increasing globally and customers are selecting our leading programs. We received a contract from the U.S. Air Force valued up to $5 billion that supports foreign military sales for the F-110 engines, which power the F-15 and the F-16 aircraft operated by allies around the world. At the same time, we're strengthening our leadership position with continued investments. Starting with the RISE program, we recently completed a second endurance test campaign on the high-pressure turbine blades earlier in the development process than ever before. This demonstrated improved durability and fuel efficiency, key customer priorities for the future of flight. We also completed the initial ground runs for the T-901 engine on a U.S. Army Black Hawk helicopter, a major milestone toward delivering a more powerful mission-ready aircraft and one that puts us on a path to a flight test. Finally, we successfully completed the detailed design review for the XA-102 adaptive cycle engines. working toward production of a full scale model. This is a critical milestone supporting the US Air Force's next generation adaptive propulsion program. We were also pleased to see President Trump's award of the F-47 and the administration's commitment to advance this important program. Our progress on advanced engines position as well with the administration's efforts to maintain military air superiority. So overall, we're focused on executing our sizable backlog while investing in the technology building blocks that will define the future of flight. Rahul, over to you.