GE Aerospace

Good day ladies and gentlemen and welcome to the GE Aerospace second 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'd now like to turn the program over to your host for today's conference, Blaire Shoor from the GE Aerospace Investor Relations Team. Please proceed.

Thanks, Liz. Welcome to GE Aerospace's second quarter 2026 earnings call. I'm joined by Chairman and CEO Larry Culp and CFO Rahul Ghai. 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 will speak to total company and corporate financial results and guidance today on a non-GAAP basis. With that, over to Larry.

Larry, thank you. And good morning, everyone. The GE Aerospace team continues to execute with discipline and focus, with our customers at the center of everything we do. Our 57,000 employees remain committed to our purpose, inventing the future of flight, lifting people up, and bringing them home safely. I'd like to open by saying CFM International is supporting our customer Ryanair and assisting with the investigation into flight 1879. Safety is our top priority at all times, and our thoughts are with the passengers, pilots, and crew who were on board. The second quarter marked another quarter of significant growth driven by robust commercial services. Overall orders were up 17% with both segments up at least low double digits. Revenue increased 24% with CES up 27% and DPT up 16%. Operating profit grew 18% with both segments up at least high teens. And EPS increased 22% and Free Cash Flow grew 43% with conversion over 140%. These results close out an exceptional first half with orders up 49%, revenue up 27%, EPS growing 24% and Free Cash Flow increasing 31% with 115% conversion. Flight Deck is helping us drive the operational improvements which undergird the significant output increases. with the first half commercial services revenue up 32% and total engine deliveries up 31%. We remain focused on advancing what matters most to our customers, delivering on robust demand and our backlog of over $210 billion while investing in both current and next gen technologies to improve time on wing and cost of ownership. Given the strength of our first half results and momentum for the remainder of the year, This morning we're raising our 2026 guidance across the board. I'd like to thank the entire GE Aerospace team and our supplier partners for working so well together to deliver for our customers. Turning to slide four, flight deck continues to strengthen our operational capabilities in safety, quality, delivery, and cost, always in that order. With demand increasing for the F-110 engine, At our site in Lynn, Massachusetts, we used Flight Deck to reduce overall production lead time for a critical component by roughly 60% through the consolidation of key process steps and reducing operator distance traveled. This supported F110 deliveries growing over 50% year over year in the second quarter. In May, I was in Brazil with the team at Selma, our largest MRO site, where I saw firsthand how we used Flight Deck to reduce CFM 56 final assembly lead time by nearly 50%. Actions like this have improved total shop visit turnaround times by about a week since the end of 2025. And just last week, we held three Kaizans with GKN, a top supplier of fan cases and other key components to break constraints tied to rate performance. We worked collaboratively together to create detailed visual work instructions increased capacity and implemented a 3D inspection technology which led to a 90% improvement in inspection time. Work is now underway to sustain these results and build further momentum. At the same time, AI is a force multiplier for flight deck. Across our turbine airfoil team, for example, we reset deck to simplify and then using AI to automate the process, we cut the number of demand signals in half and reduce processing time by nearly 90% across 190 parts. Reducing the number of demand signals we send our suppliers helps focus their efforts, leading to priority supplier material input increasing double digits sequentially and year over year again in the second quarter. This supported commercial services revenue up 32% in the first half, including record internal shop visit output in the second quarter and first half total engine deliveries up 31% including LEAP engines up 41%. We're also expanding capacity to meet growing aftermarket demand for LEAP as the installed base is expected to more than double between now and 2030. Last week we celebrated with MTU the grand opening of their new maintenance facility in Fort Worth which recently inducted their first LEAP-1B engine. All in, we're making meaningful progress with Flight Deck and while there's always more to do, we delivered substantial improvement in the first half and our team remained focused on meeting customer expectations. Shifting to slide five, while the environment remains dynamic, aftermarket demand has been resilient. First half departures were roughly flat, but we have not observed any changes in customer behavior. We expect a gradual return to modest departures growth in the second half. and combined with our commercial services backlog of roughly $170 billion, we remain well positioned for services growth in 2026 and beyond. Demand continues to be robust for LEAP, our fastest growing platform, as demonstrated by COVA Airlines recently selecting up to 120 LEAP-1B engines to power their growing fleet of 737 MAX aircraft. In addition, maturing time on wing and lowering cost of ownership remain critical priorities for our customers. We recently achieved a major milestone completing the certification for the LEAP 1B durability kit, including the upgraded HPT blade. This is expected to deliver approximately a two-fold improvement in time on wing with full MRO and new make cutover expected early next year. At the same time, we're improving LEAP turnaround times which are now around 100 days, down over two weeks year over year. Keeping customer fleets flying is critical, and we've reached nearly zero grounded LEAP-powered aircraft due to engines, supporting our customers' need for reliable lift. We're also continuing to advance the future of flight. Through the NASA Electrify Powertrain Flight Demonstration, or EPFD project, we recently completed a ground test for the Megawatt-class hybrid electric demonstrator. This represents a major milestone in understanding hybrid electric flight by bringing together advanced engines, electrical power systems, and controls. We've also expanded our relationship with Beta Technologies, who joined the EPFD project last year to advance the modification of the EPFD aircraft. We're looking forward to this plane being part of the flying display at the Farnborough Air Show next week. Within Defense, we continue to support robust demand for our services and products both domestically and with allied partners while advancing next-gen technologies. We had announced an agreement with Turkish Aerospace Industries to provide F-404 engines for its HerJet Advanced Jet Trainer program and our CP-7 engines were selected to power the UK Ministry of Defense's new medium helicopter program. We completed an assembly readiness review for the XA-102 adaptive cycle engine, a critical milestone that moves the program from design into assembly and test. This builds on the progress of the XA-100 and validates that the XA-102 engine design, manufacturing process, and supply chain are progressing and on schedule. and we continue to strengthen our position in the fast-growing collaborative combat aircraft or CCA market with our suite of products. Both the GEK-1500 and the GE-426 achieved significant milestones to move to preliminary design review, bringing them closer to eventual flight on small and medium thrust CCAs, respectively. We look forward to sharing more exciting wins and updates at the Farm Row Air Show next week. Stepping back, we're focused on translating our unmatched experience and investments into value for our customers while driving long-term growth.