GE Aerospace

Good day, ladies and gentlemen, and welcome to the GE Aerospace First Quarter 2026 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, Claire Shore from the GE Aerospace Investor Relations Team. Please proceed.

Thanks, Liz. Welcome to GE Aerospace's first quarter 2026 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 business as we see them today. As described in our FCC filings and website, those elements may change as the world changes. Additionally, Larry and Rahul will speak to total company and corporate financial results and guidance today on a non-GAAP basis. Now, over to Larry.

Thanks, Blair. Good morning, everyone. I want to start by addressing the conflict in the Middle East and the dynamic geopolitical environment our industry is navigating. While we're hopeful for a peaceful resolution, we're also embracing today's reality. With safety our top priority, we're focused every day on supporting our teams in the region and our customers globally. At GE Aerospace, we remain committed to our purpose. We invent the future of flight, lift people up, and bring them home safely. Right now, nearly one million people are in flight with our technology under wing, a responsibility our 57,000 employees take seriously. Turning to our first quarter results, 2026 is off to a strong start. Orders were up 87%, with CES nearly doubling, and DPT up 67%, including record defense orders for this decade. Revenue increased 29%, driven by CES services, and double-digit growth in DPT. Operating profit grew 18% with both segments up double digits. And EPS increased 25% to $1.86 with free cash flow up 14%. Flight Deck enabled us to improve output again with commercial services revenue up 39% and total engine deliveries up 43%. All the while, we're continuously investing to improve time on wing and lower cost of ownership for our customers across our current fleet and for next generation technologies. I want to express a big thank you to both the GE Aerospace team and our supplier partners for their unwavering commitment to deliver for our customers. Turning to slide four and what we're currently seeing in today's operating environment. In the first quarter, global departures were up low single digits including a high single-digit decline in the Middle East, which represents roughly 5% of our departures. And for the balance of the year, we've assessed multiple scenarios to develop a range of outcomes, with our current assumption that the conflict and its effects continue through the summer. As a result, we're reducing our full-year departures outlook from mid-single-digit growth to flat to low single-digit growth. This includes a low double-digit decline in the Middle East for the year, with modest reductions to other regions. Based on our experience during the global financial crisis, the impact of services will likely lag changes in air traffic demand by several quarters to be followed by a period of above-average growth. We're well-positioned to navigate cycles, with our backlog providing resilience through changes in air traffic. and we have a young and diverse fleet with leading programs in both narrow body and wide body. For our largest program, the CFM-56, about two-thirds of the fleet is yet to undergo a second shop visit, and utilization remains stable, supporting continued demand. Additionally, our defense business is supporting U.S. and allied warfighters, with our engines powering the Black Hawk, the Apache, the B-1, the B-2, the F-15EX, the F-16, and the Eurofighter. We're seeing increased utilization since March, creating future aftermarket demand. Diving deeper into services orders and backlog. Our commercial services business is supported by a robust backlog of over $170 billion, of nearly $30 billion since the end of 24, providing visibility into multi-year demand and supporting our continued growth. Over the last 12 months, commercial services orders increased over 30%, including 49% growth in the first quarter. Within services, demand remains strong for spare parts, which represent roughly 40% of services revenue. Since the beginning of March, spare parts orders are up over 30% year-over-year and sequentially flat to the first two months of the first quarter. And even with over 25% revenue growth over the last five quarters, demand continues to exceed supply. As a result, spare parts delinquency, which represents shipments that have been delayed due to material availability constraints, is up roughly 70% since the end of 2024. Given the sustained demand environment and our existing delinquency, we're entering the second quarter with more than 95% of spare parts revenue already in backlog. Turning to internal shop visits, which represent roughly 60% of our service revenue, approximately two-thirds of the engines due for our projected shop visits for all of 26 are currently off-wing, either in our shops or waiting to be inducted. Additionally, we have high visibility into the engines which will come off-wing over the next couple of quarters based on utilization trends and required removal thresholds in concert with the airline's. Our pipeline of planned engine removals in the second and third quarters, combined with engines that are currently off-wing, exceeds our shop visit guide, providing ample demand to fulfill our outlook and de-risking our 2026 guide. Overall, we expect a limited impact on services revenue and profit in 2026. We're holding our full year guidance across the board given the macro uncertainty, though with our strong start to the year, we are trending toward the high end of that range. Shifting to slide six, flight deck is fundamentally changing the way we operate, and in times like these, it matters even more. Collaborative problem solving with suppliers, air framers, airlines, and lessors are key to this effort. For example, we recently hosted a key supplier at our Terre Haute, Indiana site. Leveraging Flightdeck, we've worked together to improve flow and reduce waste on their lead production line, and they've since increased output by over 40%. Actions like these contributed to priority supplier material input increasing double digits both sequentially and year-over-year again in the first quarter, resulting in the increased outputs I mentioned ago, including engines up 43%. Across our MRO network, we're using FlightDeck to increase output, reduce turnaround times, and lower the cost of shop visits. Take our McAllen, Texas site, where we reduced leak high-pressure turbine repair time by over 50% by redesigning the cell for better flow. And we know AI will be an accelerator for FlightDeck. At our Lafayette, Indiana facility, we expanded the deployment of an AI-based material assistant to predict shop visit work scopes for LEAF engines nine months in advance, building on the turnaround time reduction we've recognized in both our Selma and Malaysia sites. Collectively, our efforts improved shop visit turnaround times for both narrow-body and wide-body platforms year over year. With our growing installed base, we're focused on expanding capacity to fulfill customer demand. Within the LEAP external network, Delta Tech Ops is now the first North American airline MRO provider licensed for both the LEAP 1A and LEAP 1B. And we just announced Iberia as our seventh premier MRO, supporting growth in Europe. More broadly, maintaining U.S. aerospace leadership requires sustained investment to meet customer demand. We recently announced plans to invest $1 billion in our U.S. manufacturing sites and supply base, for the second consecutive year to help accelerate engine deliveries, ramp up part production that extends time on wing, and strengthen our defense industrial base. Additionally, $100 million will be invested in our external supplier base to provide equipment and tooling to increase capacity. These actions and investments are driving meaningful progress to increase services and equipment output. And while there's more to do, we're off to a strong start in position to ramp even further. Shifting to slide seven, our growing backlog reflects our commitment to deliver customer value. We're investing to improve time on wing and cost of ownership. Nearly $200 million of our $1 billion investment in U.S. manufacturing supports expanding capacity for lead durability upgrades. And we're making progress upgrading the fleet with durability kit now on over 30% of the LEAP 1A installed base. Growing our repair capability is critical to improve turnaround times and lower cost of ownership, as a repaired part can cost 50% less than a new part. At our Singapore repair facility, we're investing $300 million to support new technologies and repair processes. Our customer-driven approach is driving backlog growth with more than 650 commercial engines for over $1 billion in wins in the first quarter alone. This included extending our 50-plus year partnership with American as they celebrate their 100th anniversary this month. American recently committed to more than 300 LEED 1A engines with options for 200 more to power future A321neo and A321XLR deliveries. United, also celebrating 100 years this month, selected 300 GENX engines for its 787 fleet, making it the largest GENX operator globally. And additionally, Delta committed to 60 GENX engines with options for 60 more for its new 787 fleet, marking its first GENX selection. In services, we signed an agreement with Ryanair, covering approximately 2,000 CFM56 and LEAF engines, providing material support and MRO services to scale their in-house capabilities, consistent with our open MRO strategy. And in defense, in support of the CH-53K and the critical missions it performs for the U.S. Marine Corps, we were awarded a $1.4 billion contract for additional T-408 turboshaft engines. With continued momentum, we're looking forward to what should be an exciting Farnborough air show in July. Our experience with our current fleet is also informing next-generation technology investment. RISE is central to that strategy and will enable improved efficiency without sacrificing durability. This quarter, together with the Civil Aviation Authority of Singapore and Airbus, we established the world's first airport testbed for open-fan technology as a part of the RISE program. This testing will validate how next-gen engine architectures operate in real-world airline environments and marked another step forward toward ground and flight tests later this decade. In defense and systems, we also continued to execute with speed against high-priority military needs in support of U.S. and allied warfighters. This quarter, deliveries were up 24%, and we continue to receive awards across our family of small engines, a key growth area as programs progress. This included an award from the U.S. Air Force to complete an initial design concept of the GEK-1500 in partnership with Kratos, with potential applications across unmanned aerial systems, collaborative combat aircraft, or CCAs, and missiles. This work is being informed by the maturity of the GEK-800, which completed successful altitude testing last fall. The team designed, built, and tested the first GEK-800 in less than 12 months, testing the fifth iteration of the engine last summer. And we're making progress with high-end CCAs through our partnership with Shield AI for the Expat Vehicle Program, pairing our propulsion development, testing, and certification expertise with their autonomous aircraft capabilities to accelerate delivery of mission-ready capabilities. We also recently completed a preliminary design review on the hybrid electric turbo generator engine system for Beta Technologies MV250 VTOL autonomous aircraft. This confirms the engine concept and demonstrates the power of combining our technical expertise and accelerating key programs. Stepping back, we're driving measurable progress on what matters most to our customers, ramping output and improving durability while reducing the cost of ownership, which supports their growth and ours. Rahul, over to you.

Larry, thank you, and good morning, everyone. We started the year with over 20% stop line and earnings growth. Orders were up 87%, with CES up 93%, and DPT up 67%. Revenue increased 29%, with CES up 34%, while DPT was up 19%. Operating profit was $2.5 billion, up approximately $380 million. driven by services volume and price. Margins, as expected, decreased 200 basis points to 21.8% from the impact of installed engine growth, investments, and inflation. EPS was $1.86, up 25% from increased operating profits, a lower tax rate, and a reduced share count. Free cash flow was $1.7 billion, up 14%. largely driven by higher earnings. Working capital and AD&A combined was nearly a $500 million source with strong utilization billings, partially offset by the expected timing of compensation payments. Going deeper on our 25% EPS growth this quarter. Growth in operating profit drove 29 cents, or nearly 80% of the improvement in EPS. with increased profit in CES and DPT. This was partially offset by higher corporate costs and eliminations, which were up around $120 million. Roughly half from an increase in eliminations and half from an increase in environmental health and safety expenses of a low base. A lower tax rate and reduction in share count drove an additional 10 cents of EPS growth. Tax rates decreased 3 points to 14.7% from earnings mix and benefit from recent tax legislation. Share count was down 24 million from our previously announced capital allocation actions. Turning to CES, in the first quarter, orders grew 93%, with services up 49% and equipment more than tripling to nearly $8 billion. Revenue increased 34%. Services grew 39% with internal shop visit revenue up 35% from higher volume, including LEAP internal shop visit growth of over 50% and increased work scopes. Spare part sales were also up over 25% from improved material availability and growth of external LEAP shop visits. Equipment revenue grew 20%. with engine deliveries up 50%, including leave up 63%. Wide-body deliveries were also up over 25%, driven by GENX, which was up even more. Profit was $2.4 billion, up nearly $450 million. From higher services, volume, price, and the absence of charges, related to estimated profitability on long-term service agreements taken in first quarter of 2025. As expected, margins were down 230 basis points to 26.4%, driven by installed engine growth, including 9X shipments and investments. Both installed engine and spare engine volume increased year over year, but growth in installed outpaced spare engine growth. Overall, CEF continues to deliver meaningful growth, largely driven by services as OE ramps. In DPT, orders increased 67%, including T408 engines for U.S. Marine Corps CH-53K. Defense book to bill was above two for the second consecutive quarter. Revenue grew 19%. Defense and systems revenue was up 14%, as units grew 24%, driven by an increase in F-110 and rotorcraft engines. Propulsion and active technologies grew 29%, with growth across the portfolio led by Avio Aero. Profit grew 17% from increased volume and price. Margins were down 20 basis points to 11.8%, driven by mix, investments, and inflations. DPT delivered a solid first quarter with continued demand strength and improved output. Moving to guidance on slide 12. Our first quarter exceeded expectations, given stronger spare part sales growth and shop business increase. We have a robust backlog supporting our growth for several years, and we are taking action to navigate the current environment. Due to the dynamic macroeconomic backdrop, we are maintaining our guidance across the board. And as Larry mentioned, given our strong start to the year, we are trending towards a high-end range of low double-digit revenue growth, profit of $9.85 to $10.25 billion, EPS of $7.10 to $7.40, and free cash flow of $8 to $8.4 billion for total companies. We are also maintaining a second guidance for both CES and CPT with a similar trend towards the higher end. Our guidance is based on full-year departure growth of flat to low single digits and is underpinned by the following assumptions. Fuel prices remain elevated above current levels through the third quarter and decreasing to current levels by year-end. A near-term impact from fuel availability in certain geographical regions. Global reduction in GDP growth impacting air travel demand. This guidance doesn't contemplate a global recession unfolding. Near-term, orders continue to be strong, and we expect the strength in the first quarter to continue into the second quarter with 95% of square parts in backlog, and all shop visits for the quarter already off-ranks. As a result, we are expecting second quarter services growth of high teams above our full year guide and supporting total company year-over-year and sequential profit growth in the quarter. For full year, we are now expecting services revenue is up roughly $4 billion year-over-year from approximately $3.5 billion expected previously. Supporting our increase of profit and cash to high end of the range. However, as we get into the second half, we are taking a more measured view. Given the evolving environment and have included the potential impact from deacceleration in spare parts growth, lighter work scopes, delayed spare engine shipments, and reduced billings within our guidance. While the external environment remains uncertain, we are taking proactive actions. including managing discretionary spending and conducting reviews to assess risks and opportunities to support our customers. Overall, balancing the various factors, we are confident in our ability to deliver the high end of our guidance given a strong first quarter outlook for the second quarter and a substantial backlog. With that, Larry, back to you.

Rahul, thanks. Our momentum is further supported by our sustained competitive advantages. With the industry's largest fleet, 80,000 engines and growing, and more than 2.3 billion flight hours, we operate at scale with unmatched proximity to our customers across decades-long life cycles, which makes us the partner of choice. Our field experience, combined with nearly $3 billion in annual R&D, enables continuous improvement in time on wing and cost of ownership, directly aligned with what our customers value most. Across narrow-body, wide-body, regional, and defense platforms, we offer leading performance under wing, supported by deep technology expertise and a growing services network. Our world-class engineering teams develop next-gen technology to improve durability, efficiency, and turnaround times, along with advanced defense capabilities. And through FlightDeck, we're turning strategy into results with a focus on safety, quality, delivery, and cost, always in that order every day. With FlightDeck, our over $210 billion backlog, and the actions underway, we're well positioned to manage near-term uncertainty and deliver value. With that, let's go to the questions.

Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, can you please open the line?

Ladies and gentlemen, if you wish to ask a question, please press star 1-1 on your telephone. If you wish to withdraw your question or your question has already been answered, please press star 1-1 again. Our first question comes from David Strauss with Wells Fargo.

Thanks. Good morning. Thanks for taking my question.

Good morning, David.

Thanks for all the detail on how you're thinking about the aftermath, but just wanted to clarify. So, Larry, it sounds like you ultimately do expect an impact on services growth from your lower departure growth forecast, but maybe it sounds like you're thinking more so in 27 or carrying into 27 than 26, given your strong Q1 and the backlog that you have on the services side, and I guess in terms of how you're thinking this might play out, are you thinking at this point that there could be a pickup in CFM56 or GE90 retirements, or are you just expecting lower utilization to come through at this point? Thanks.

David, I think that what you see in the lean toward the high end of the guide is the expectation that we're going to have a strong second quarter. given the visibility that we have both with spare parts and shop visits. We touched on that earlier. I think that's very meaningful. I think what we're acknowledging is it's very hard for any of us to call the duration of what's happening in the Middle East at this point. By holding the guide, I think what we've suggested is that the backlog that we have, the visibility that we do have for the second half should allow us to be within that guide that we offered up 90 days ago. I think we are acknowledging that if there is sustained softness in departures, that there is an effect typically in the commercial services, but with a lag. Let's hope we're not staring at something akin to the GFC. We mentioned that in our prepared remarks, but there will be a lag effect. But at this point, I think given what we know, we feel strongly about our ability to deliver the high end of the guide here in 26.

And David, just to add to that, if you think about 2027, like you said, you feel good about 26. But, you know, having leading positions in both narrow body and wide body, you know, 75% share of the narrow body cycles, 55% share of the wide body cycles is helpful in times like this, you know, when traffic growth is uneven as it dampens the volatility that we see in the markets. Also, the fleet is young. You touched on the CFM-56 and GE-90. You know, a third of the CFM-56s have not seen their first shop visits. Two-thirds have not seen a second shop visit. And similar trends for GE-90. You know, 70% of the GE-90s have not seen the second shop visit. And we're not, you know, I know it's early days, but as we sit here in April, both the number of parked aircraft and the retirements are really low. In fact, the retirements in the first quarter... for CFM56 was lower than what we experienced in fourth quarter. So we've not seen any increase in either of those two trends. And as Larry mentioned in his prepared remarks, as we've seen in prior cycles, the air traffic has a strong recovery after every downturn. So if you see here delay, if you see any impact here in the second half of the year, it is gonna be a push out of demand versus a destruction. So again, it's hard to call 27 just yet. It all depends on how the situation evolves over the next few months. But it is early to call, but overall we feel good about the trajectory that the business is on, you know, through this cycle.

Our next question comes from Sheila Kailu with Jefferies.

Good morning, guys, and thank you. Maybe just a follow-up on David's comments. Larry and Raul, you know, services up 39% in Q1, great quarter both on shop visits and spare parts. And Q2 expected to be up high teens, implying only mid to high single digits in the second half. So maybe delving a little bit more into visibility you guys have through the summer. And Raul, you mentioned push out of demand, not demand destruction. I guess how do we think about where you guys are seeing most potential risks post Q4? whether it's narrow bodies or wide bodies, and how do we think about retirement rates staying low today and potential assumptions for 26 and 27?

Yeah. So, Shira, I think we touched on a couple of things here. You know, as you said, we see good visibility into the second quarter, right? We've said, Larry and I both said, 95% of the spare parts for second quarter are in the backlog. All the engines that we need to work on for second quarter are in the shop. And Larry also kind of provided a fuller, sharper view here that we are about a third oversubscribed right now from what's already off-wing and what will come off-wing here in the second and the third quarter. So that gives us confidence around 2026 here. Now, as you go into 2027 and where the risks may come, I think you touched on, you know, the retirement, you touched on retirement rates. Now, keep in mind that the retirement rates that we've assumed for 2026 for CFM 56 are in the 2% range. And what we saw in the first quarter is sub 1%. And as we get into 2027, we've already assumed in our prior outlook that retirement increased to 3% to 4%. So just the outlook that we've provided, we've factored in certain increase in retirements. Now, we've not seen that. We are not seeing anything concerning just yet. Our order trends are holding, but it is more with what is unknown, and that's a little bit of caution, prudence, whatever words you want to use for the second half of the year, and I think time will play out and give us more visibility into 27. But overall, the business is strong. franchise is strong, and I think we should be able to navigate anything that comes, you know, that evolves here over the next few months.

Our next question comes from Ken Herbert with RBC Capital Markets.

Yeah, hi, good morning, Larry and Raul. Really strong, yeah, really strong spare parts orders in the first quarter. I'm just curious, especially your comment on March strengthening from the first two months, Do you get a sense that there was any pre-buying by your customers on the aftermarket ahead of potential disruptions or concerns down the road? I'm just curious as to what was underlying the real strength in orders in the quarter and if there could have been any pull forward in the order demand. Thank you.

Ken, I don't think we have seen any evidence of a pull forward here before. to Rahul's comments just a moment ago, when you think about the breadth of the portfolio, narrow body, wide body, on a global basis, we just haven't seen that sort of behavior. We also mentioned in the prepared remarks that as proud as we are of the operational progress that we've made, we still saw delinquency increase, which means we are past due on the spare part orders that we do have. So, I think customers are busy. There's still perhaps some pent-up demand from the pandemic that is working its way through the system. But to your specific question, we have not seen that behavior.

Our next question comes from Christine Lewek with Morgan Stanley.

Hey, good morning, everyone. You know, Larry Rahul, you talk a lot about demand, and I just want to dive a little bit deeper here. You know, you talked about 2Q and 3Q engine removal pipelines are above your shop visit guide. So, holding the macro environment you called out, is this higher removal pipeline contemplated in your upper-range 2026 outlook, or could we see revisions higher in the year if oil resolves in 3Q?

Christine, good morning. I think if it were not for current events, we'd be talking about an increase in the guide this morning, not color and body language toward the high end of the existing range. You know, in many respects, just given the backlog that we've highlighted a couple of times already, both in terms of spare parts but also shop visits, absent a change in customer behavior and continued progress on our part relative to internal operational execution, that potential does exist. But again, I think given current events, we thought it most prudent to simply stay with the range that we issued 90 days ago, provide a little bit more color, particularly with respect to not only the quarter but the first half here. And I won't repeat what we've already said. But I think in terms of our ability to control the controllable, feel very good about that, the progress that we've made. with the supply base has been considerable already this year. I think it's just built on the progress over the last couple of years. And you see that not only in the input numbers we've cited, but in turn the output numbers as well, both in terms of units and dollars. That should continue.

And Christine, just as Larry said, to get to a higher shop visit number, that is not factored into our guidance. So, What we'll need to see is we'll need to see better material flow through here than what we have currently factored in to burn some of that delinquency that exists on both spare parts and the shops of this house. So that, to your point, will take our services guidance about where we have factored in around $4 billion of growth this year.

Our next question comes from Scott Doishley with Deutsche Bank.

Hi, good morning. Good morning, Scott. Rahul, I was wondering if you might share with us an update on LEAP aftermarket profitability and particularly how LEAP aftermarket margins are trending in 2026 relative to 2025. And then love to get your latest thinking on the path to margin expansion on the program beyond 26 and over the long term. Thank you.

Yeah, no, Scott, on LEAP, the services business is trending really, really nicely. We're expecting... You know, a further improvement this year on margins. Trends have been good for the first half of the year here. And it's coming from a few things. It's coming from increased volume, right, that we are driving in our shops. Larry spoke about the repairs that we are developing in our aftermarket business. And this year we expect the number of repairs that we are developing on LEED to double over what we developed last year. So that is helping reduce the cost of the shop business. The external channel is coming up nicely as well. We are at now about 15% of our shop visits for LEAP are now performed by third parties. That number was close to 10% just 18, 20 months back. So that part of the business is developing nicely. So if you put all that together, as you think longer term to the second part of your question, we do expect the LEAP service margins start to get to overall CES, service margins by the time we get into 28-ish timeframe. So really pleased with the progress. You know, for a business that was just kind of break-even two years ago, I think we made a lot of progress here in the last 18 months.

Our next question comes from Robert Stollard with Vertical Research. Thanks so much.

Good morning. Good morning. Just want to follow up on slide five and that spare parts delinquency chart you've got in there. Is that continued march higher in delinquencies just due to continued demand exceeding supply chain strain? And how long do you think it will take to get that back down to a more reasonable number?

Well, it is despite the progress we've talked about a few times now this morning. not only with inputs but outputs, just a function of demand outstripping supply. We highlight delinquency simply to make sure investors understand that that dynamic is in play here. Operationally, it is a number we are not proud of, right, because we are holding, we're failing to meet customer expectations in that regard. I think it's going to take us a while yet here to get to zero delinquency. That clearly is the goal, on-time delivery, one of our critical operational KPIs as part of Flight Deck. So we're not going to be able to kind of circle that, but I think given the continued momentum we see with our suppliers and in our own operations, that is something that we should deliver on in time, regardless of the demand environment.

Our next question comes from Douglas Harnett with Bernstein.

Good morning. Thank you. Good morning. I wanted to continue on the look at the current environment because when you look forward and see some of the challenges out there, you know, if we see jet fuel above $200 in Asia, in Europe, there are quite a few airlines that could be under some real financial pressure. And when you look at the steps you need to take over the next year or so, how do you compare the concerns around, say, an airline that simply is in difficult financial straits and can't do an overhaul versus simply reductions in flying hours that could take from dollars out of LTSAs. How do you think about these different sort of hazards out there over the next year, perhaps?

Well, Doug, I think the scenarios that we talked about earlier have us contemplating a range of possibilities, given that none of us know how things are going to play out here, particularly with respect to duration in the Middle East. I don't think we've tried to tether ourselves to one scenario or another. But we have considerable backlog. We've talked about that a number of times this morning. We are mindful of the risks that we may have in the customer base. Rahul and the team have increased the work we do in that regard. But first and foremost, we're trying to support our customers as best we can. to weather these storms as we have in past situations, be it the pandemic, be it the GFC, and even situations that were of lesser impact. We are also putting our spending under greater scrutiny, continue to invest in the future of flight, of course, continue to invest in improved durability and lowering the cost of ownership. But Given the situation, we are, I think, making sure that as a senior leadership team, we are spending in a, let's say, in a more cautious fashion today, given what we know and given what we don't.

Our next question comes from Scott Nikas with Milius Research.

Morning, Larry and Rahul. I figured there would be a lot of questions about the conflict in the Middle East. So I wanted to check in on the GE9X, Boeing flag, the fatigue issue with the engine. So just curious if you could provide an update on that. Is there any change to the expectations you had for losses on the program this year?

No change on schedule, no change on losses. You know, I just start, Scott, to reiterate that we're thrilled to be the sole source partner on the 777X program. We've got over 1,000 engines now on order, and customers want the engines, they want the airplanes. What we've shared with folks is that we saw back in January a durability issue with the mid-seal. Remind everybody, this was on an engine that was certified back in September of 2020. The crack that we uncovered during a A shop visit, which is part of a flight test engine, is something we've seen before. We think we are at root cause, and we're finalizing the modification as we speak. And we've been fully transparent with Boeing and the FAA every step of the way. So I think as Boeing has said, we believe we're on track with the certification plan that has been communicated to customers. No change to the schedule. And of note, the 777X flight test program continues, right? It's ongoing. With respect to deliveries, we had deliveries in the first quarter. Currently, we're continuing to build up an assembly to the point of the mid-seal. We're modifying the tooling and ramping some suppliers for the modified part. So we'll end up having deliveries that will end up more second-half weighted. But I think at this juncture, no reason to believe the full year will be any different than what we've communicated.

Our next question comes from Miles Walton with Wolf Research.

Thanks. Good morning. Alyssa, I'm going to switch gears a little bit. On arrow derivatives, I know it's an off-topic question, but you had a disclosure that had a restatement and moved arrow derivatives equipment from your CES segment to your DPT segment. What caught me in my eye was you had about 94 deliveries of error derivatives last year to your customers, but the pricing on those looks fairly benign relative to the potential for what pricing could be given the backdrop for power. So can you talk about what the strategy is for error derivatives and what the upside opportunity could be there for repricing and volume? Thanks.

Yeah. So, Miles, on error derivatives, as you know, we provide the engine and then our partners in the JV, they take the product to market, they do the system integration, add some controls with it. There's work done by both the parties. But I think what you saw in our disclosure is basically the fact that we are burning the pre-spin backlog. That was backlog that we had sold when we were part of one company that had very different agreements. Post-spin, the pricing to the JV has been revised substantially, and we're kind of working our way through the old backlog, and we should transition to the backlog that we, to the orders that we have won post-spin in the next, I would say, 18 to 24 months. So you see gradual increase in pricing here over the next few months to quarters, right? So you see an improvement. But overall, I think it's a great business. We have sold out here through 2030s. So that is, you know, that's one leg of this tool. And then obviously everything that you're seeing with now CFM 56 getting added potentially to the power generation capacity, that gives another leg of growth for CFM 56 platform, be it through, you know, spare part sales to third parties who are developing that product or some other form of collaboration. So I think we are exploring all those things. But overall, the aeroderivated business is in a really good spot in the market, both with the existing products that we have and potential new entrants to that market.

And, Miles, we moved it over as a reminder for everybody. We moved it over from CES into DPT really to give the commercial team the opportunity to focus exclusively on the airliners, the airlines and the airframers. And at the same time, there are some similarities to part of our defense engines and services business, especially around marine applications. So there's a little bit more – there's a better operational home for this business in the other segment. That's the sole reason for the move earlier this year.

Our next question comes from John Godden with Citi.

You guys, thanks for taking my question. If I could just come back to CS margins specifically. There's a concern out there that, You know, if this fuel shock continues, retirement spike in particular, your CES margins would be at risk. You've obviously been very thoughtful about your guidance and vetted a pretty conservative outlook for global aviation, and it doesn't seem like you think that risk is particularly likely. So I'd love to just get your reaction to that, to the concern on margin risk, and what positive offense to this mixed effect might exist if global aviation continues to deteriorate?

So I think there's two parts to the question.

I think for the current year, right, as you think about the margins, we've baked in kind of flattish margins here for the year. As you think about the growth for the year, right, the $4 billion growth that we're now expecting, keep in mind the first quarter grew by about $2 billion. And then we are expecting high-teens growth here. in the second quarter. So that, you know, that gets us closer to two-thirds of, you know, three-fourths of the growth will be in the first half of the year. So we feel good about the growth rates that we have for the year, and that should support kind of the margin expectations that we have for the business. Now, again, what's happening in the year, as we've discussed previously, is that we're getting good support from our services growth. That's dropping through at a healthy clip. And in the first quarter, service margins are actually up year over year. So that was a positive trend. Now, we're not making that in for the full year. Full year, we're expecting service margins to be flat, but it's a good start to the year. And that positive drop through from the services is getting offset by the OE growth that we saw. You know, you saw that in the first quarter for full year, we're expecting leaks to be up 15%. And while both spare engines and install engines are going to be up for the year, the growth is primarily going to be driven by install engines here for the year. And then we have 9x difference. So that kind of, you put all that together, we expect kind of slattish margins for the year for CES. Now, as you go outside the year, John, you spoke about the leap margin trajectory earlier. To Scott's question, we expect leap margins to approach overall CES levels across, you know, service profitability here in the next couple of years. 9x losses should also peak by the time we get to 2028, right, just given that we're driving a 50% reduction in 9x costs. So lead margins improving, 9X headwinds kind of leaking in 28. And as we look beyond that, that is when we expect both accelerated profit and margin expansion in the business.

Our next question comes from Gavin Parsons with UBS.

Good morning. Thanks, guys. This is Joel Santos filling in for Gavin Parsons. Thanks for taking my question. Moving to defense, strong results in 1K and solid margins, stronger ordering environment. As we look through the rest of the SX, how should we think about sustainability of growth margins in the segment?

So for DPT, again, you saw our revenue growth in the first quarter. You know, we're expecting... high key revenue goals for the first quarter. And overall, if you look at the results for the first quarter, they keep us at pace for what we've guided to the full year, both on year-over-year profit growth and the absolute dollar of the profit that we delivered in the first quarter. Now, margins are a little bit light in the first quarter, largely because the equipment grew more than the aftermarket, but that makes sense. But I think overall, we're kind of on track as we think about the year. So we're gonna drive strong output the productivity is going to get better, and the mix should also improve as we go through the year. So I feel we have really, you know, given the growth rates that we had in the first quarter, we feel good about the year, and you took, as you said in our prepared remarks, we do expect JPD to be at the higher end of the guidance that we previously committed, just given the growth rates that we are seeing in the first quarter and the drop-through expected from that.

Our next question comes from Seth Seifman with J.P. Morgan.

Thanks very much, and good morning. Good morning, Seth. Good morning. In the outlook where you talk about Brent prices remaining fairly elevated through Q3, I think, You know, in addition to brand prices, we've seen a significant increase in the spread for jet fuel. Are there special things we should be thinking about there and reasons why, from a jet fuel perspective, this could carry on longer and or be more disruptive than simply what's happening with oil prices?

Seth, I don't think we're trying to be – too granular in the underlying assumptions, right? I think the economic realities you've just pointed out are there, and I hope what we're taking is a conservative set of assumptions on board here between now and, let's say, Labor Day. Time will tell. But by and large, we know that between the inflation and potential scarcity in other parts of the world, that we could see some near-term airline behavior shift, right? By near-term, I mean the late summer, early fall, call it the second half. But we're also assuming that by the end of the summer, we're on our way back to more normal conditions. And given what we've seen before, we may have a lag in the aftermarket on the commercial side of the business from what's happening currently, but then we tend to have a spring back, which is why we've kind of alluded to some of our historic reference points in that regard. That demand tends to get pushed out as opposed to going missing indefinitely.

Liz, we have time for one more question.

This question comes from Gotham Con with TD Securities.

Hey, thank you. I had actually two questions, but the first one just on supply chain, you mentioned delinquencies and the like, but if you could just characterize how material improved sequentially and where, and maybe there's an update you've given in the past on how many suppliers and, you know, where the pinch points are strongest. And then just secondly, was wondering on the company's aftermarket exposure to kind of low-cost carriers or business models in the airline industry that might be more affected by the top oil environment. Maybe if you could elaborate on that.

Yeah, maybe I'll take the supply chain question. I'll let Rahul speak to certain customer segment risk. I think from an input perspective, We mentioned earlier that we've seen double-digit increases again sequentially in year over year from some of the critical suppliers. I think we've said all along we're going to be the problem solvers, not the finger pointers. And I just am really pleased with the way we've had suppliers across the board engage with us. It's been a journey at every point. But I think we're just simply getting better. We're more transparent. We're more trustworthy with each other. And in turn, we've just allowed our best people to go, again, but to go to where the constraints, the bottlenecks exist and solve them. Again, there's no way we take engine output up 43%, right, without that sort of support from the customer base. Likewise, commercial services up 39%. There's no way we're able to get that volume out the door to serve our airline customers without really good progress using Flight Deck with the supply base. That is not to suggest that we're all clear between now and 2030. There's still a lot of work because we're going to have to do more every year, but what a wonderful challenge to have. And again, kudos to our team, kudos to the supply base for engaging and supporting us with our ultimate customers in mind, particularly here in the first part of 2026.

And go to your second question. I mean, if I step back here and just look at the environment that we've seen. I mean, we've spoken to the order friends here through the start of the conflict. There's nothing in the environment here that's giving us pause, right? The customers are eager to get back in the air, yet they're experiencing temporary disruptions, just given everything that's going on directly in the Middle East, a little bit from lack of lack of availability of fuel prices, but everybody's super eager to get back and support the supply and public. So that's what we are seeing right now. We spoke to the sense that we're expecting here in the second quarter. And as we think about the whole year, had it not been for the environment that we're in, and I'm repeating something that Larry said earlier, we would have raised that item. Because the first quarter was about $300 million better than what we'd expected at the beginning of the year. And then we're carrying that strength into the second quarter. The momentum is clearly carrying through, and we spoke to both sequential and year-over-year profit growth here in the second quarter, with high teens services growth expected. And then the second half is just about what we don't know. I think that that is the question. So hopefully, as Larry said earlier, We're being conservative and cautious, prudent, whatever words you want to use. I think, again, time will tell. But we feel good about the year as we sit here today. And we're not seeing any disruptive behavior on part of the customers. We're not seeing risks that we didn't have maybe just a couple months back. But we're monitoring the situation very, very closely, as you would expect us to. And we will give updates throughout the quarter as we learn more

Larry, any final comments?

Larry, thank you. Just in closing, FlightDeck will help us deliver what our customers value most, higher outputs, improved durability, and lower costs of ownership, even as we navigate the current environment. We're confident in our trajectory and our ability to deliver value for customers and shareholders. We appreciate your time today and your interest in GE Aerospace.

Thank you, ladies and gentlemen. This concludes today's conference. Thanks for participating. You may now disconnect.