GE Aerospace

Good day, ladies and gentlemen, and welcome to the GE Aerospace fourth 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'd 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 fourth quarter and full year 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 on a non-GAAP basis. Now, over to Larry.

Larry, thanks, and good morning, everyone. I'd like to begin with our purpose. We invent the future of flight, lift people up, and bring them home safely. Right now, Nearly 1 million people are in flight with our technology underwing, connecting people and goods worldwide. We play a vital role in powering the war fighters who defend freedom. And while we work to deliver for our customers today, we're also inventing technology that will propel the industry forward tomorrow. Our purpose is our call to action. And I couldn't be prouder of what our team achieved in 2025, but also how we got there. with our culture of respect for people, being customer driven, and continuous improvement. Turning to our results on slide four, 2025 was an outstanding year for GE Aerospace as we made operational progress, delivered on our financial commitments, and continued to invest in our future. The fourth quarter was a strong finish to the year. Orders were up 74%, reflecting continued robust demand for our services and equipment. Revenue increased 20% with double digit growth in both segments. EPS was up 19% to $1.57, and free cash flow grew 15%. For the full year, we drove substantial improvement across all key metrics. Orders were up 32%, revenue increased 21%, operating profit grew $1.8 billion, and free cash flow was up $1.5 billion. In CES, orders were up 35% and revenue grew 24%, including services orders up 27% and revenue up 26%. This supported our profit growing 26% to $8.9 billion. In DPT, orders increased 19% and revenue was up 11% with increased deliveries and defense. Profit increased 22%. to $1.3 billion. Our performance reflects the impact of flight debt, driving incremental gains that compounded into meaningful improvements. This enables us to accelerate output to deliver on our roughly $190 billion backlog, which is up nearly $20 billion over the last year. We are also investing to improve time on wing and reduce cost of ownership to deliver value to our customers. supporting growth today, tomorrow, and into the future. I want to thank the entire GE Aerospace team, our suppliers, and our customers who put their trust in us. Looking to 2026, we're poised for another year of substantial revenue, EPS, and cash growth. Demand remains robust, with 2025 orders up 32% and continued backlog growth. This supports our expectation for revenue to be up low double digits, including commercial services, up mid-teens. We expect operating profit of $9.85 billion to $10.25 billion, up a billion dollars at the midpoint. This translates to EPS of $7.10 to $7.40, up nearly 15% at the midpoint. And we expect to generate to $8.4 billion of free cash flow with conversion remaining well above 100%. This outlook builds on the progress we made in 24 and 25. We expect to deliver mid-teens revenue growth between 24 and 26 compounded and $10 billion of profit in 26, two years earlier than our outlook had spent. We continue to convert this into cash, expecting to generate more than $20 billion of cash between 24 and 26 to reinvest in our future, including in US manufacturing to support both our commercial and defense customers. GE Aerospace is an exceptional franchise, servicing and growing the industry's most extensive installed base of 80,000 engines. As we further embed Flight Deck, we'll unlock greater value for our customers and shareholders. Turning to slide six. In their first year, our technology and operations, or T&O team, made a meaningful impact. We partnered more effectively with our suppliers, resulting in material input from our priority suppliers growing over 40% year over year in 2025, and up double digits sequentially in the fourth quarter. both translating to higher outputs. While we're making progress, we know our customers need more from us. To further accelerate our progress in 2026, we're expanding CES to include T&O, now led by Muhammad Ali. Integrating our product line, engineering, and supply chain teams will improve our end-to-end engine lifecycle management. We're also elevating our customer-facing teams led by Jason Tonich, now reporting directly to me, aligned with our customer-driven approach. These changes will enable greater cross-functional problem solving, agility, and alignment to deliver for our customers. I also want to take a moment to thank Russell Stokes, who announced he'll retire from GE Aerospace in July after 29 years of service. His continuous improvement mindset and passion for developing leaders help build this world-class business. Russell was one of the first leaders I met here at GE, and he's been a critical partner over the last seven years. We wish him nothing but success in his next chapter. These changes, along with Flight Deck, will further support growth in deliveries in 26. Across our MRO network, we are removing waste to improve shop visit output and turnaround times. For example, we're converting from batch to flow production, which supported LEAP, CFM56, and GE90 turnaround times, improving over 10% year-over-year in the fourth quarter. Additionally, at our Wales facility, CFM56 turnaround time improved by 20%, and at Selma, we sustained turnaround times below 80 days. This enabled us to deliver our highest LEAP shop visit output of the year. With LEAP installed, they're expected to roughly triple between 24 and 30. We're expanding capacity across our global MRO network to support aftermarket demand. In 2025, we added MTU Dallas as our sixth premier MRO partner, supporting third-party shop visit growth, now representing around 15% of total LEAP shop visits. We're dedicating approximately $500 million of our more than $1 billion of investment in MRO to leak. This includes expanding several MRO sites, including Malaysia, Selma, and Dallas, and a new on-wing support facility in Dubai. We expect these investments will roughly double LEAP internal capacity. Taken together, these actions drove meaningful progress in services and equipment output in 2025. CES services revenue increased 26%, with internal shop visit revenue up 24%, including LEAP internal shop visit volume up 27%. Spare parts revenue grew more than 25%. Deliveries across commercial and defense increased 26% for the year, including a strong finish with 8% sequential growth in the fourth quarter. Commercial units increased 25%, including LEAP up 28%, exceeding 1,800 units, a record output for the program. and defense engine deliveries increased 30%. While 2025 marked a year of progress, we know there's more to do to meet customer demand, and I'm confident we'll deliver. Turning to slide seven, one of the behaviors that guides us is to be customer-driven in all that we do. We're leveraging over $2.3 billion flight hours, and nearly $3 billion in annual R&D to drive meaningful improvements for our customers. Our focus remains on delivering mature levels of time on wing and lowering costs of ownership. In November, the GENX fleet leader, equipped with the upgraded HPT blade, which has improved time on wing over two and a half times in hot and harsh environments, achieved a new milestone, surpassing 4,000 cycles. Informed by our progress with the GENX, the LEAP 1A durability kit will improve time on wing by more than two times, matching our industry-leading CFM56 performance. This is now incorporated in all LEAP 1A new engine deliveries and shop visits, with nearly 1,500 kits shipped since certification. In addition to improved durability, we're also expanding our LEAP repair catalog, which will lower cost of ownership and improve turnaround times. In 25, LEAP parts certified for repair increased 20%, and we expect continued growth in 26. Combined with our progress on delivery, we're actively working to meet customer expectations on LEAP. At the same time, utilization of our mature engines remains robust. CFM 56 is the most widely owned and operated engine in commercial aviation. with retirements in 25 consistent with 24 levels. The third-party MRO ecosystem provides customers with optionality for servicing their fleets, supporting higher asset values, and lowering costs of ownership. And we continue to strengthen MRO access to OEM materials to support further CFM56 longevity. Last quarter, for example, we reached a materials agreement with FTI Aviation to support service of its growing fleet of CFM56 engines. We're also progressing the next generation of engines. We recently completed a ground test campaign demonstrating our first hybrid electric narrow-body engine architecture. This first-of-its-kind propulsion milestone demonstrates systems integration, advancing the technology from concept to practical, scalable application. As we deliver greater customer value and advanced breakthrough technologies, We're growing our backlog. At the Dubai Air Show, we've recorded over 500 engine wins across narrowbodies and widebodies, including Riyadh Air's commitment for 120 LEAP-1A engines and FlyDubai's selection of 60 GENX engines. Additionally, Pegasus Airlines committed to up to 300 LEAP-1B engines to power its future Boeing 737-10 fleet. And we're honored that Delta, a new GENX customer, selected us to power and service their new fleet of 30 Boeing 787s. In defense, Hindustan Aeronautics ordered 113 F-404 engines for the Tejas fighter jets, demonstrating our position as a trusted partner for allied fighter programs. Overall, we're driving progress, improving field performance, turnaround times, and advancing future propulsion technologies. We're well positioned to strengthen our leadership across both the commercial and defense sectors in 2026.