GE Aerospace (GE)

Executive Summary / Key Takeaways

• Pure-Play Transformation Complete: GE Aerospace has emerged from its multi-year breakup as a focused aerospace propulsion leader with an installed base of 49,000 commercial engines, transforming from a struggling conglomerate into a high-margin services business where approximately 70% of revenue comes from recurring, highly profitable aftermarket services.

• Operational Excellence Driving Margin Inflection: The company's proprietary FLIGHT DECK lean operating model is delivering tangible results, with Q3 2025 segment profit margins expanding 170 basis points to 23% and services revenue surging 28%, demonstrating that supply chain constraints are easing and the services backlog is converting to cash flow.

• LEAP Profitability Trajectory Validates Investment Thesis: LEAP services became profitable in 2024, with the program expected to reach overall breakeven in 2025 and OE profitability in 2026, representing a critical inflection point that will add billions in high-margin revenue as the installed base triples by decade-end.

• Raised Guidance Reflects Execution Confidence: Management has repeatedly increased 2025 guidance, now expecting revenue growth in the high teens, operating profit of $8.65-8.85 billion, and free cash flow of $7.1-7.3 billion, though this optimism embeds assumptions about sustained departures growth and supply chain stability that remain vulnerable to macro shocks.

• Valuation Demands Perfection: At $288.45 per share, GE trades at 38.6x earnings and 47.5x free cash flow, pricing in flawless execution of the services ramp and LEAP profitability trajectory, leaving limited margin for error on execution or cyclical downturns.

Setting the Scene: The Aerospace Oligopoly's Services Champion

General Electric Company, operating as GE Aerospace, was incorporated in 1892 and is based in Evendale, Ohio—a location that belies its global dominance in aircraft propulsion. The company has spent the past four years completing one of industrial America's most complex corporate surgeries, shedding healthcare and energy businesses to emerge as a pure-play aerospace leader. This transformation has unlocked a business model that was previously obscured by conglomerate complexity: a services-centric cash flow machine built on the industry's largest installed base of commercial and military engines.

GE Aerospace operates in a classic oligopoly, where three players control the vast majority of the global market for commercial aircraft engines. The company services and grows the industry's most extensive commercial propulsion fleet with approximately 49,000 commercial engines installed worldwide. This installed base is the foundation of its economic moat—each engine generates 20-30 years of aftermarket service revenue, creating a predictable, high-margin annuity stream that now represents roughly 70% of total revenue. The business model is straightforward: sell engines at or near cost to win platform positions, then capture decades of profitable service revenue as those engines require maintenance, repairs, and spare parts.

The company's strategic positioning has been sharpened by its November 2021 decision to separate into three independent public companies. The January 2023 spin-off of GE HealthCare (GEHC) and April 2024 spin-off of GE Vernova (GEV) eliminated capital allocation conflicts and allowed management to focus exclusively on aerospace. These changes enabled the launch of FLIGHT DECK, a proprietary lean operating model that integrates safety, quality, delivery, and cost disciplines across the entire value chain. The transformation also facilitated the formation of a new Technology & Operations organization in 2025, bringing together engineering and supply chain teams to accelerate problem-solving and improve delivery performance.

Industry structure favors GE's approach. Commercial air travel demand drives equipment sales, while the long service life of engines creates a captive aftermarket. The company powers three out of every four commercial flights globally, giving it unmatched scale to spread R&D costs and service infrastructure. This scale advantage is amplified in an environment where airlines prioritize operational reliability and total cost of ownership over upfront engine price—a dynamic that plays directly into GE's hands as it delivers durability improvements that keep engines on wing longer, reducing airline downtime while increasing GE's service intervals.

Technology, Products, and Strategic Differentiation: The Durability Moat

GE's competitive advantage rests on a foundation of proprietary engine technologies that deliver measurable performance benefits customers willingly pay for. The LEAP engine platform, launched in 2011, represents the company's narrowbody workhorse, while the GEnx and GE9X dominate widebody applications. What distinguishes these platforms isn't just fuel efficiency—it's time on wing, a critical metric that determines airline profitability and GE's service revenue cadence.

The GEnx durability package released in 2021 delivered a more than 2.5x increase in time on wing, with fleet leaders in hot and harsh environments approaching 4,000 cycles and still running. This means customers keep engines on wing about five years between shop visits, reducing maintenance costs while extending GE's service revenue recognition period. The LEAP-1A HPT durability kit certified in late 2024 is designed to achieve similar results, more than doubling LEAP time on wing to match industry-leading CFM56 performance. These advancements accelerate the LEAP platform's maturation curve, enabling GE to capture premium service pricing earlier in the engine lifecycle.

The GE9X engine for Boeing (BA)'s 777X represents the company's technological flagship. With over 30,000 cycles of testing—including 9,000 endurance cycles—it is the most tested engine in GE Aerospace history. The fourth-generation composite fan blades contribute to enhanced durability and fuel burn, building on 140 million flight hours of experience from previous composite blade generations. This extensive testing de-risks entry into service and establishes performance benchmarks that competitors must match, creating a multi-year lead time advantage.

GE's technology roadmap extends beyond current platforms. The RISE program with CFM has completed over 350 tests, focusing on open-fan architecture that gains efficiency through the fan system rather than pushing core temperatures higher. This approach reduces the key driver of engine removals while delivering the 20% fuel burn reduction customers demand for next-generation aircraft. The company recently completed dust testing on next-generation HPT blades earlier in development than ever before, demonstrating improved durability and fuel efficiency. These investments position GE to win on future platforms while extending the service life of current engines, directly supporting the services revenue growth that underpins the investment thesis.

The company's additive manufacturing capabilities provide another layer of differentiation. GE is the only engine manufacturer able to leverage extensive wide-body composite experience for narrow-body engines, accelerating the LEAP learning curve and achieving mature time on wing faster than competitors. This technology enables lighter, stronger components that improve fuel efficiency while reducing maintenance requirements, creating a virtuous cycle of performance improvement and cost reduction that strengthens customer lock-in.

Financial Performance: Evidence of Strategy Execution

GE's Q3 2025 results provide compelling evidence that the transformation strategy is working. Total revenue increased 24% to $12.2 billion, driven by a 27% surge in Commercial Engines & Services (CES) to $8.9 billion and a 26% jump in Defense & Propulsion Technologies (DPT) to $2.8 billion. This growth demonstrates both segments are firing simultaneously, reducing reliance on any single market and validating the pure-play aerospace focus.

The composition of growth reveals the services engine at work. CES services revenue increased 28% year-over-year, with internal shop visit revenue up 33% and spare parts revenue up more than 25%. This outpaced equipment revenue growth of 22%, expanding the services mix that generates superior margins. The drivers of this performance are critical: improved material availability helped fulfill customer demand that had been constrained for quarters, allowing GE to convert its $157 billion remaining performance obligation (RPO) into recognized revenue. Supply chain recovery is translating directly to profit growth.

Segment profit margins tell the real story. CES margins expanded to 27.4%, up 170 basis points year-over-year, while DPT margins jumped 380 basis points to 13.6%. This margin expansion demonstrates operational leverage—revenue growth of 27% in CES translated to 35% profit growth, indicating that incremental revenue is dropping through at high incremental margins. The DPT margin improvement is particularly significant, as defense businesses typically face cost-plus pricing constraints; the 75% profit growth on 26% revenue growth suggests GE is successfully driving productivity and mix improvements in a traditionally lower-margin segment.

Cash flow generation validates the earnings quality. For the nine months ended September 30, 2025, cash from operating activities increased $1.9 billion to $6.4 billion, driven by higher net income and improved working capital management. Free cash flow reached $2.1 billion in Q3, nearly doubling year-over-year. This shows GE is converting accounting profits into actual cash, funding its $1 billion U.S. manufacturing investment and $2 billion debt issuance while maintaining flexibility for shareholder returns. The company's commitment to return a majority of free cash flow to shareholders—having increased returns 4x since the spin-off with a target of $24 billion through 2026—demonstrates confidence in the durability of cash generation.

Segment Deep Dive: The Services Flywheel

Commercial Engines & Services: The Crown Jewel

CES is the engine driving GE's valuation re-rating. The segment's installed base of 49,000 commercial engines creates a captive audience for services, with each engine generating predictable maintenance cycles. In Q3 2025, CES delivered 664 commercial engines, up 33% year-over-year, including 511 LEAP engines (+40%). Each new engine adds 20-30 years to the services backlog, compounding future revenue streams.

The services revenue acceleration is the critical variable. Internal shop visit revenue grew 33% in Q3 and 22% year-to-date, while spare parts revenue increased over 25%. This growth is occurring because worldwide shop visits have not yet recovered to 2019 levels, creating pent-up demand that GE is now positioned to capture. Management noted that inductions have outpaced output even with strong results, indicating a healthy pipeline of engines awaiting service. The services growth trajectory has multiple years of runway before normalizing, supporting the high-teens revenue growth guidance.

LEAP profitability is the inflection point investors must watch. The program became services-profitable in 2024 and is expected to reach overall breakeven in 2025, with OE profitability following in 2026. LEAP represents the future installed base that will triple by decade-end. The current LEAP services margins are projected to approach overall service margins by 2030, implying a multi-billion dollar profit uplift as the installed base matures. The LEAP-1A HPT durability kit, now incorporated into all deliveries and shop visits, will improve time on wing more than twofold, matching CFM56 performance and enabling GE to charge premium service pricing.

Capacity expansion supports the growth thesis. GE expanded LEAP aftermarket capacity by approximately 40% in 2024 and plans to grow internal and external capacity by another 40% by decade-end. The XEOS MRO facility in Poland completed its first LEAP shop visits, while the third-party MRO network saw external shop visits double. GE is investing to capture demand rather than leaving it to competitors, ensuring it maintains control of the services revenue stream that drives margins.

Defense & Propulsion Technologies: Stable Growth Engine

DPT provides diversification and defensive characteristics, powering two-thirds of all U.S. military combat and helicopter fleets. Q3 2025 revenue grew 26% to $2.8 billion, with profit up 75% to $386 million and margins expanding 380 basis points to 13.6%. This performance shows GE can drive significant operational leverage in a segment where pricing is often constrained by government budgets, suggesting productivity improvements are real and sustainable.

The segment's $19 billion RPO, up 6% year-to-date, provides revenue visibility that complements the commercial backlog. Defense units delivered jumped 83% year-over-year to 172 engines, marking the second consecutive quarter of over 80% growth. Defense production ramps are notoriously difficult to execute, and GE's ability to deliver at this pace demonstrates supply chain stabilization and manufacturing competence.

Key program milestones validate the technology roadmap. The T901 engine achieved first flight on a Black Hawk helicopter, while the XA102 adaptive cycle engine completed its Detailed Design Review. The $5 billion IDIQ contract from the U.S. Air Force for F110 engines supports foreign military sales, providing a multi-year revenue stream. These developments position GE to capture increased defense spending focused on modernization and localization, with international growth expected to outpace domestic due to rising global tensions.

Outlook, Guidance, and Execution Risk

Management's guidance raises throughout 2025 reflect growing confidence in execution. The full-year outlook now calls for high-teens revenue growth (up from mid-teens), operating profit of $8.65-8.85 billion (up $400 million at midpoint), and free cash flow of $7.1-7.3 billion (up $500 million). The operational improvements are translating into quantifiable financial outperformance, validating the FLIGHT DECK investment.

The 2028 outlook is even more ambitious, with management raising profit and free cash flow expectations by $1.5 billion versus prior views. The company now targets $11.5 billion in operating profit and at least $8.5 billion in free cash flow by 2028, driven by $8 billion in commercial services revenue growth. This implies a 21% operating margin and 100% free cash flow conversion, metrics that would place GE among the highest-quality industrial companies. The key assumption is that LEAP services margins will approach overall service margins by 2030, which requires flawless execution on durability improvements and capacity expansion.

However, guidance embeds critical assumptions that create execution risk. Management expects low single-digit departures growth for 2025, down from initial mid-single-digit expectations, reflecting a more cautious view on North American demand. They have not factored in a slowdown in airframer delivery schedules, further tariff escalation, or global recession. The services revenue growth thesis depends on continued flight operations; a severe downturn could pressure the 33% shop visit growth rate seen in Q3. The spare parts delinquency, which increased over 2x year-over-year in Q1, remains a risk if supply chain improvements reverse.

Tariffs represent a $500 million headwind in 2025, which management plans to offset through cost controls and pricing actions. While the U.S. established zero-for-zero tariff agreements with the EU, UK, and Japan on aerospace equipment, reciprocal tariffs with China remain paused but not resolved. This creates margin pressure that must be offset through productivity, testing management's ability to maintain the 27.4% CES margins while absorbing external cost increases.

Risks and Asymmetries

The investment thesis faces three material risks that could break the bull case. First, supply chain dependencies remain acute. While priority suppliers delivered over 95% of committed volume for three consecutive quarters and material inputs grew 35% year-over-year, the company still carries $3 billion in "trapped inventory"—material purchased but unusable without complete part sets. This represents working capital inefficiency and vulnerability to further disruptions. If supplier performance deteriorates, the 33% shop visit growth could stall, breaking the services revenue engine that justifies the valuation.

Second, the LEAP profitability timeline is aggressive. While services became profitable in 2024 and overall breakeven is targeted for 2025, this requires continued durability improvements and external MRO network expansion. The LEAP-1B durability kit isn't certified until first half 2026, creating a timing gap where performance could disappoint. LEAP represents the future installed base; any delay in achieving CFM56-level time on wing would compress service margins and push out the 2030 profitability parity target.

Third, competitive dynamics could shift. RTX (RTX)'s Pratt & Whitney GTF engine has faced durability issues, creating an opening for GE, but RTX's ability to bundle propulsion with Collins' avionics and structures could provide competitive advantage on future platforms. Safran (SAFRY)'s equal partnership in CFM means GE doesn't capture all LEAP economics, while Rolls-Royce (RYCEY)'s focus on high-value widebody engines could pressure GE9X pricing. GE's 75% life-of-program win rate on GEnx and 90%-plus win rate since 2023 depend on maintaining technological leadership; any slip could reduce the $157 billion RPO growth rate.

The asymmetry lies in GE's ability to exceed guidance through operational leverage. If FLIGHT DECK drives two points of annual productivity as planned, and LEAP services margins reach target by 2030, the 2028 outlook could prove conservative. The company's $12.5 billion cash position and investment-grade credit rating (upgraded to A3 by Moody's and A- by S&P in early 2025) provide firepower for strategic acquisitions like Northstar Aerospace or accelerated buybacks, creating potential upside beyond the baseline scenario.

Competitive Context and Positioning

GE's competitive position is strongest in narrowbody commercial engines, where the CFM joint venture with Safran captures approximately 75% of industry flights. This dominance creates a self-reinforcing cycle: more engines in service generate more operational data, which improves durability and performance, which wins more orders. The LEAP platform's 40% delivery growth in Q3, while RTX's GTF faces ongoing durability concerns, demonstrates this advantage in real-time.

In widebody engines, GE competes directly with Rolls-Royce's Trent series. The GE9X's 30,000 cycles of testing and fourth-generation composite fan blades provide a durability edge, but Rolls-Royce's experience with long-haul operations creates credible competition. GE's 75% life-of-program win rate on GEnx is valuable because widebody shop visits generate more than 2x the revenue of narrowbody visits, making each win disproportionately impactful. The GEnx durability package that increased time on wing 2.5x since 2021 has been a key differentiator, underpinning this win rate.

Defense propulsion shows GE's U.S. focus as both strength and limitation. Powering two-thirds of U.S. military combat fleets provides stable, funded revenue, but RTX's broader systems integration capabilities and Safran's European defense relationships create geographic blind spots. The $5 billion F110 IDIQ contract locks in foreign military sales revenue for years, but it also concentrates risk in U.S. defense spending priorities.

Financial comparison reveals GE's premium positioning. GE trades at 38.6x P/E versus RTX at 34.5x, Safran at 27.7x, and Rolls-Royce at 15.2x. This valuation gap reflects market confidence in GE's superior growth (24% Q3 revenue growth vs. RTX's 12% and Safran's 15%) and margins (20.6% operating margin vs. RTX's 12.4% and Safran's 16.1%). However, GE's 1.15 debt-to-equity ratio is higher than Safran's 0.37 and RTX's 0.61, creating relative balance sheet risk if cash flow disappoints.

Valuation Context

Trading at $288.45 per share, GE Aerospace carries a market capitalization of $305.9 billion and enterprise value of $314.7 billion. The stock trades at 38.6x trailing earnings, 47.5x free cash flow, and 27.9x EBITDA. These multiples embed expectations of sustained high-teens revenue growth and margin expansion to 21% by 2028, leaving minimal room for execution missteps.

Relative to peers, GE's valuation premium is justified by superior growth and margin profile but vulnerable to compression if performance falters. RTX trades at 17.98x EBITDA with lower growth, while Safran commands 20.13x EBITDA despite slower expansion. GE's 0.50% dividend yield and 18.18% payout ratio reflect a capital allocation strategy focused on buybacks over dividends, with $19 billion in planned repurchases through 2026. This signals management's belief that share repurchases at current levels create more value than alternative uses of capital, but it also concentrates risk—if the stock declines, these buybacks represent destroyed capital.

The company's 42.13% return on equity and 4.93% return on assets demonstrate efficient capital deployment, but the 1.15 debt-to-equity ratio requires monitoring. The $2 billion debt issued in July 2025, comprising 4.30% notes due 2030 and 4.90% notes due 2036, extended maturity at favorable rates but increased leverage. GE's ability to maintain investment-grade ratings while funding capacity expansion and returning cash to shareholders depends on hitting the aggressive 2028 free cash flow target of at least $8.5 billion.

Conclusion: A Services Monopoly at a Premium Price

GE Aerospace has successfully transformed from industrial conglomerate to focused aerospace services leader, creating a business model where an unmatched installed base generates predictable, high-margin revenue for decades. The FLIGHT DECK operating system is delivering measurable improvements in supply chain performance and margin expansion, while LEAP's path to profitability represents a multi-billion dollar profit inflection over the next five years. The company's ability to raise guidance repeatedly in 2025 demonstrates execution confidence backed by tangible results.

The investment thesis hinges on two variables: whether GE can sustain services revenue growth in the mid-20s as the installed base expands, and whether LEAP achieves the targeted profitability timeline without margin erosion from competition or supply chain setbacks. The current valuation at 38.6x earnings and 47.5x free cash flow leaves no margin for error, pricing in flawless execution of the 2028 outlook that calls for 21% operating margins and $8.5 billion in free cash flow.

For investors, the risk/reward is asymmetrically skewed to the downside in the near term—any disappointment in Q4 shop visit volumes, LEAP durability performance, or macro-driven departures decline could trigger a 15-20% multiple compression. However, the durability of the services moat and the triple-digit billions in RPO provide fundamental support that makes GE a hold for long-term investors, with opportunistic entry points likely to emerge on any execution stumble. The story is working; the price just demands that it continues working perfectly.