GE Aerospace Q1 2025 Earnings Report

GE Aerospace EPS Results

• Actual EPS: $1.49
• Consensus EPS: $1.29
• Beat/Miss: Beat by +$0.20
• One Year Ago EPS: N/A

GE Aerospace Revenue Results

• Actual Revenue: $9.94 billion
• Expected Revenue: $9.06 billion
• Beat/Miss: Beat by +$871.13 million
• YoY Revenue Growth: N/A

GE Aerospace Announcement Details

• Quarter: Q1 2025
• Date: 4/22/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, April 22, 2025
• Conference Call Time: 7:30AM ET

General Electric Company (GE), doing business as GE Aerospace (NYSE:GE), is a global aerospace and defense technology company that specializes in designing, developing, and producing commercial and military aircraft engines, integrated engine components, electric power systems, and mechanical aircraft systems. The company also offers aftermarket services, including maintenance, repair, and overhaul (MRO), as well as the sale of spare parts.

GE Aerospace operates through two main segments. The Commercial Engines and Services segment supports jet engines for commercial airframes, business aviation, and aeroderivative applications. The Defense and Propulsion Technologies segment provides engines, avionics, and power systems for government and military customers, along with a broad range of products including turboprop engines, aeroengine transmissions, combustors, propeller systems, and additive manufacturing components for both fixed-wing and rotorcraft platforms.

Incorporated in 1892 as Edison General Electric and later renamed GE, the company has long been a leader in industrial and technological innovation, playing a key role in the development of RCA, NBC, gas turbines, and early computing. GE was a founding member of the Dow Jones Industrial Average and remained part of it for 122 years.

Headquartered in Evendale, Ohio, GE Aerospace has a global presence across the United States, Europe, China, Asia, the Americas, the Middle East, and Africa.

As of 2024, GE has completed its transition to a focused aerospace enterprise following the spin-offs of GE HealthCare and GE Vernova. Today, GE Aerospace continues to advance technological innovation in aviation while supporting global sustainability goals, aiming for carbon neutrality by 2030 and net-zero emissions by 2050.

GE Aerospace Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the GE Aerospace First Quarter twenty twenty five 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.

[Operator]

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.

[Operator]

Please proceed.

[Blaire Shoor, Head Of Investor Relations at GE Aerospace]

Thanks, Liz. Welcome to GE Aerospace's first quarter twenty twenty five earnings call. I'm joined by Chairman and CEO, Larry Culp and CFO, Rahul Guy. 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.

[Blaire Shoor, Head Of Investor Relations at GE Aerospace]

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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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 $170,000,000,000 plus backlog. And for the future, we are advancing the technology that will define the future of flight across both commercial and defense with approximately $3,000,000,000 in annual R and D spending. Flight Deck, our proprietary lean operating model, is how we translate that strategy into results.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Launched a year ago, we're activating Flight Deck 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 $2,100,000,000 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 $1,400,000,000 In Commercial Engines and Services, or CES, we're servicing and growing the industry's most extensive commercial installed base.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

GE Aerospace supports efforts to revitalize domestic manufacturing, and it's why we're investing $1,000,000,000 in US manufacturing this year and hiring over 5,000 US workers. At the same time, we support promoting free and fair trade that ensures the continued strength of The US aerospace industry. Our industry has a nearly $75,000,000,000 trade surplus, the highest trade balance of any sector, and exports more than $135,000,000,000 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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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 $500,000,000 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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Given strong orders growth over the last several quarters, our commercial services backlog has grown out over $140,000,000,000 We've

[Lawrence Culp, Chairman and CEO at GE Aerospace]

had a lag

[Lawrence Culp, Chairman and CEO at GE Aerospace]

in converting those orders to revenue given the broader supply chain dynamics. Our spare parts delinquency 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, quarter departures are shaping up 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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

In the first quarter, material input at our priority supplier sites was up eight percent 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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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 demand.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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, 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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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 seven, 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 NGENX engines to power 13 A321neos up to twenty two seven thirty seven MAXs and eighteen seven eighty seven-nine aircraft as part of their fleet upgrade.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Additionally, we received a commitment from Malaysia Aviation Group for 60 CFM LEAP engines plus additional spares to power 30 Boeing seven 30 seven MAX aircraft. And in the wide body segment, Korean Air announced an agreement for up to 30 Boeing seven 80 seven-10s and twenty seven seventy seven-9s with our GE NX and GE-9X engines under wing. In DPT, defense budgets are increasing globally and customers are selecting our leading programs. We received a contract from the US Air Force valued up to $5,000,000,000 This supports foreign military sales for the F-one 10 engines, which power the F-fifteen and the F-sixteen aircraft operated by allies around the world. At the same time, we're strengthening our leadership position with continued investments.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

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 T901 engine on a US 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 X-eight-one hundred two adaptive cycle engine, working toward production of a full scale model. This is a critical milestone supporting the U.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

S. Air Force's next generation adaptive propulsion program. We were also pleased to see President Trump's award of the F-forty seven and the administration's commitment to advance this important program. Our progress on advanced engines position us 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.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Rahul, over to you.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Thank you, Larry. Good morning, everyone. We started out 2025 with a strong first quarter, marked by significant top line and EPS growth. Orders were up 12%, and revenue was up 11%, both led by commercial services. Profit was $2,100,000,000 up $600,000,000 or 38%, driven by services volume, favorable mix and price.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Margin expanded four sixty basis points to 23.8%. EPS of $1.49 was up 60% from profit growth, a favorable tax rate, and a lower share count from buyback actions. Free cash flow was 1,400,000,000 down 14% and in line with our expectations. Working capital was the source primarily from contract assets. Inventory increased to prepare for higher output and to tackle ongoing material availability challenges.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

This was partially offset by payables. Given our operational and financial strength, we continue to expect to deploy over $8,000,000,000 of cash to shareholders in 2025 through dividends and buybacks. We remain well positioned to drive significant shareholder returns while continuing to invest in growth, innovation, and focused M and A. Looking closer at our businesses, starting with CES. In the quarter, orders were up 15% with services up 31%, while equipment was down 13% given a tough compare.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Revenue was up 14%, led by services up 17%. Spare parts revenue was up more than 20% from higher volume and price. Internal shop visit revenue grew 11% from higher shop visit output, increased work scopes, and wide body mix. Equipment grew 9% with favorable customer mix and price offsetting unit deliveries that were down 9%. While still elevated, the spare engine ratio stepped down sequentially, in line with expectations, and the LEAP life of program spare engine ratio remains in low double digits.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Profit was $1,900,000,000 up 35% from services volume, mix, and price. This more than offset inflation, increased R and D, and a year over year change in estimated profitability on long term service agreements of approximately $100,000,000 primarily from the estimated impact of tariffs. CES margins expanded four twenty basis points to 27.5%. Overall, a very strong start for CES, largely driven by services. Moving to DPT.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Orders were flat year over year with services up 14%, while equipment was down given the significant growth in first quarter of last year. Defense demand remains robust with a book to bill of 1.4 x. Revenue grew 1%. Defense and systems revenue was flat. Defense unit growth of 5% and price were offset by lower services revenue.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Propulsion and Additive Technologies grew 1%. Services volume and price offset lower internal shipments from our planned lower start in equipment sales. Profit was up 16%, driven by customer mix, productivity, and price. This was partially offset by self funding of next generation investments and inflation. Margins improved 160 basis points to 12.7%.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Stepping back, DPT delivered a better than expected first quarter. Shifting to corporate. Cost, including eliminations, was about $70,000,000. This was down over 40% or approximately $55,000,000, mostly driven by expenses down roughly $40,000,000. Now moving to our guidance on slide 11.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

First quarter exceeded expectations, given stronger spare parts sales and services mix, which should continue. We have a robust backlog supporting our growth for several years, and we're taking actions to offset the impact from tariffs and to help us in navigating the uncertainty in the environment. Operationally, we are performing better than we expected on the January earnings call. But given the macroeconomic backdrop, we are holding our guidance across the board. Therefore, we continue to expect low double digit revenue growth, profit of $7,800,000,000 to $8,200,000,000 EPS of $5.1 to $5.45 and free cash flow of $6,300,000,000 to $6,800,000,000 We're also maintaining our segment guidance.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Unpacking the moving pieces. We have included the following in our guidance. Recognizing the dynamic background, we are preparing for tariffs that could persist through year end, with 10% tariffs remaining in place and then reciprocal tariffs resuming after the ninety day pause. As Larry mentioned, we expect roughly $500,000,000 of cost after our operational actions to minimize the tariff impact. From there, we expect to primarily mitigate this remaining $500,000,000 through SG and A cost controls and price increases.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

We are maintaining our R and D spend for the year. Regarding the macro environment. Given the ongoing uncertainty in the second half, we are adjusting some of our full year expectations. We now expect low single digit full year departure growth, down from mid single digits in January. Given the tariffs in place, we've reduced spare parts and spare engine sales for the year to that region.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

This demand is not foregone as our customers in China still have needs for services and spare engines, but they may be delayed. We are maintaining our full year spare parts guidance for low double digit growth given the stronger start to the year and nearly 90% of spare parts in backlog for second quarter. We expect minimal impact on internal shop visit revenue, which represents roughly 60% of our total services revenue, given our backlog, pent up demand, and limited risk to shop visits pushing out. Overall, we continue to expect low double digit to mid teens services growth. We have not factored in a slowdown in airframer delivery schedules, further tariff escalation, or a global recession into our guidance.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

We remain confident in our ability to deliver another year of strong results. With that, Larry, I'll turn it back to you.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Rahul, thank you. We're encouraged by our strong start, which combined with the actions we're taking puts us well on our way to achieving our full year guide. CES is on track for another year of significant growth and we expect continued solid performance at DPT. GE Aerospace has sustained competitive advantages. We have a diversified fleet of preferred platforms across the narrow body, wide body, and defense sectors.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

At the core of everything we do is safety, quality, delivery, and cost, always in that order. Our services and technology offer industry leading operational reliability, including greater efficiency, extended time on wing, and faster turnaround times. We serve the industry's largest fleet of 70,000 engines with unrivaled customer service and flight support. This keeps us close to our customers through decades long life cycles, building meaningful relationships and making us the partner of choice. Our talented engineering teams continue to develop breakthrough innovation to support our existing fleet and advance next generation technologies.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

And Flight Deck supports us in delivering results and lasting value for our customers and shareholders. These differentiators combined with our growing backlog will not only help us manage the near term, but enable us to deliver long term value. With that, Blair, let's go to questions.

[Blaire Shoor, Head Of Investor Relations at GE Aerospace]

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?

[Operator]

Ladies and gentlemen, if you wish to ask a question, Our first question comes from Doug Harnett with Bernstein.

[Douglas Harned, Managing Director at Bernstein]

Thank you. Good morning.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Good morning, Doug.

[Douglas Harned, Managing Director at Bernstein]

Larry, you talked about tariffs at the outset. And tariffs in aviation really aren't good for anybody.

[Douglas Harned, Managing Director at Bernstein]

And you said that you're advocating a return to that zero tariff approach. But I wonder if you can comment some on the interactions that you've had or perhaps others in the industry have had with the administration in order to advocate for that point of view for aviation. And perhaps you can say, there any thoughts you have about how this might play out over time, scenarios that may be possible given the uncertainty right now?

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Well, Doug, I think it's easier to speak to the first part of that than the second part. We have spoken to a number of people, senior people within the administration, including the president. We have been, I think, full throated in our support of the administration's efforts to support American competitiveness and revitalize American manufacturing. We're well aligned in that regard. But it's easy to overlook the $75,000,000,000 trade surplus the sector enjoys largely on the back of this tariff free regime that we've had since 1979.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

So all we have suggested as the administration works through a myriad of issues is that they consider the position of strength that the country enjoys as a result of this tariff free regime, and to consider reestablishing the same. There are a whole host of potential scenarios here, Doug, that we could take on operationally. I won't take your time to go through them. There is uncertainty. None of us, I think, know for sure how this plays out.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

But as Rahul walked through a moment ago, I think what we've basically assumed here is that what we're dealing with is what we'll see through the rest of the year. We've knocked down a good bit of the the gross effects through the actions like duty drawbacks and foreign trade zones, but we're still staring at the better part of half a billion dollars of headwind in 2025. And in turn, that's where the cost control actions and the price actions that we've touched on here give us additional offset opportunities. But as we work those operationally, rest assured, we will continue to advocate in the best ways possible on behalf of the industry.

[Operator]

Our next question comes from Sheila Kahyaoglu with Jefferies.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Good morning, Larry and Raul, and thank you. Good morning, Maybe just sticking on the tariff topic, if that's okay, very good start to both CES and DPT. Total profit beat of $250,000,000 even baking in $100,000,000 of impact from tariffs in Q1, and you talked about a $500,000,000 net impact. How do we think about the margin cadence in Q2 and the second half as we think about those tariffs coming in?

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Right. No, Sheila. So let me start and Larry can jump in here. Listen, we've had a good start here. You know, first quarter came in came in better than than what we expected.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

And as we think about the year, and we mentioned this in January, we did expect a strong start to the year. You know, we we were aiming for a more linear year than we had last year. And given the OE ramp was a little bit back end loaded, we have 9F shipments in the back half of the year, and then lower spare engine ratio and including step up in corporate expenses. So we had expected that we will have a stronger first half, and we've that in the first quarter. So and as we think about the second quarter, to get to your question, we do expect that momentum to continue into the second quarter.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

And what we are thinking for second quarter right now, given where we are in April, is that the GE Aerospace revenue growth to be better than what we delivered in first quarter and the profit dollars for the second quarter to be flat to sequentially up from first quarter and decently up on a year over year basis. So and this will be primarily driven by services, and we expect similar revenue growth in services as we did in the first quarter. As I said on the call, you know, more than 90% of the spare parts are in the backlog, which is a similar position that we were in in January for first quarter. And but this spare parts growth in the second quarter will be partially offset by a higher OE growth. Now as we think about the second half of the year, you know, a lot more uncertainty given the volatility around the macro trends that we've spoken to, but we've embedded a certain amount of conservativism in in our guide around departures that we spoke about and issues arising from the tariffs in in China.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So given that, we've reduced our expectations for spare engines and spare parts deliveries to China. Now some of them will get diverted to other customers, but there'll probably be still be an impact. And we've also factored in the potential slowdown in departures in North America. But overall, we are holding the low double digit spare parts growth for the year just given the start that we've had. So if you put all that together, you know, we should still see year over year profit growth in the second half should be a still be a very, very good year for us.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

And overall, as we sit here today, Sheila, we feel better about the year even with the tariffs, even with the macroeconomic uncertainty than we did back in January. And knowing that, you know, where we are in the world right now, we'll be back together in June at the Paris Air Show, and we'll give you an update there.

[Operator]

Our next question comes from David Strauss with Barclays.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Thanks. Good morning, everyone. Good David. So just wanted to dig in a little bit on that second half of the year assumption on departures. It looks like you're assuming basically no departure growth in the second half of the year.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Is that right? And what is specifically in a flat departure scenario are you assuming for spares? And a follow-up there on shop visits. I know you talk about you've got a lot of backlog on shop visits, but how long would you think that departures can stay relatively flattish before you start to see an impact in terms of shop visits just from retirements picking up and so on? Thanks.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

David, you touched on a number of the variables there. Again, the mid single digit outlook for departures that we saw, we talked about back in January, held up quite well in the first, and it looks like, just looking at this morning's data, that continues to be the case. We often, I think, maybe over index on the dynamics in The US market. We know there's some cross border traffic softening in Canada to The US, even Europe to The US, but broadly, when you look around the world, departures are holding up pretty well. Rahul, I used the word conservatism earlier.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

I think we're just taking a conservative view with respect to the second half. US departures could soften. We may see some adjustments elsewhere. We'll leave the detailed planning to the airlines. But again, I think we know that it will take some time for that to impact us.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Not that we will be immune for the calendar year, but when you look at past downturns, it has taken two, three, four quarters, sometimes longer, for that departure slowdown to really impact our activities. And I think that's why we've highlighted the strength of the spare parts order book that we have in hand. Again, 90% of the second quarter already in place. And with the engines that are off wing, either in our shops today waiting to to come in the shop or waiting to to be delivered to us, that would take us well into the fall. So we we we don't like the fact that we've got such delinquencies in place.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

We want to serve our customers better, but it does, I think, support the underlying strength of the backlog and the delinquency as we look at our opportunities to execute and deliver through the rest of this calendar year. But again, there's uncertainty here. We're taking what we think is a cautious view, and we'll be watching it very, very closely.

[Operator]

Our next question comes from Gautam Khanna with TD Cowen.

[Gautam Khanna, Managing Director at TD Cowen]

Yes. Good morning, guys.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Good morning, Gautam.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Good morning.

[Gautam Khanna, Managing Director at TD Cowen]

I was wondering if you could elaborate on your pricing strategy and how it might differ from normal years. Are you going to wait till kind of midyear to enact spare price increases? What's different as you approach pricing offset to tariffs this year?

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So Gautam, we are doing this are two pieces to this. We will do our typical kind of catalog price increases that that we do, you know, late in the summer. Again, our thinking around that has not changed. We are still aiming for that mid to high single digit price increases on our spare parts later that summer, which is consistent with where we were in in January. So that expectation has not changed.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Now that typically translates into kind of mid single digit at the overall services level for us, you know, after sharing with the revenue share partners and everything else. The pricing benefit on the remaining service contract is is lower than what we see on the spare parts, as you know. But overall, I think that that that expectation has not changed. I think what we alluded to on on the tariffs was a temporary surcharge for recovering the the cost that we are that that we are feeling right now. Now we're trying to offset that with all the things that we spoke about, that Larry spoke about even a minute ago to Doug's question.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So we're trying to manage through that, and then we're gonna take some SG and cost control actions, and whatever's left, we'll share that in in some way, shape, or form to a tariff surcharge. And, hopefully, that doesn't it's not a permanent thing, we can take those away as soon as the tariffs end. So that's our thinking right now.

[Operator]

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

[Ken Herbert, Managing Director at RBC Capital Markets]

Yes. Hi. Good morning, everybody.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Good morning, Ken.

[Ken Herbert, Managing Director at RBC Capital Markets]

Hey, Larry or Raul. I just wanted to see, in the first quarter, really strong spare parts purchasing. Can you comment if you expected or saw any pre buys there specifically in China or elsewhere perhaps maybe ahead of the tariffs or other factors? And as part of that over 20% growth, can you give any granularity on maybe wide body versus narrow body dynamics or specifically LEAP versus CFM56?

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So, Ken, no pre buys. I mean, typically, we don't see that in January. I think we kind of knew that. I think we go back to the first quarter earnings call, we said 90% was in the backlog, and we are sitting in a similar situation here in the second quarter as we've said a couple of times here. So no pre buys.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

I think the departures were up 4%. They're hanging in there. We're up 4% in the first quarter. They're hanging in at that level even in the second quarter through April and through the forward schedules that we are seeing in May. So clearly, trend is continuing.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So no pre buys. Now in terms of the wide body, narrow body, and on LEAP versus CFM56, obviously, LEAP is growing faster. Right? We expected more than 30% shop visit growth on LEAP. And within that 30% shop visit growth, the external channel, we expect the external channel to be this year to be about 15% of our total shop visit revenue versus kind of 10% last year.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So within that, you can see the external channel beginning to pick up, and that is driving the Leap Sphere parts revenue growth. For CFM56, we continue to expect kind of, you know, mid single digit shop visit growth, which will drive the CFM56 revenue. So LEAP is clearly going faster here than CFM 56 on a percentage basis. And but nanobody wide body, I think that, you know, obviously, LEAP is driving a little bit higher percentage growth, but we're seeing good good growth even on the wide body side, especially as g 90 and n x get into heavier work scopes.

[Operator]

Our next question comes from Myles Walton with Wolfe Research.

[Myles Walton, Managing Director at Wolfe Research LLC]

Thanks. Good morning. Rahul, maybe for you, equipment gross margins in the quarter, it's another quarter of positive gross margins, I think 12%, even better than the 8% you had last quarter despite a lower spare engine ratio. I'm just curious, is there anything structural going on with respect to the razor razor blade model and making money maybe on new equipment or is there something else under the surface you could give some color to?

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Yeah. So, Miles, couple of things there. One, the number that you have is obviously the total g aerospace level versus CES. Just keep that at the back of your mind. And as you as we as you saw, defense, we did say higher revenue growth.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

I mean, the units were up 5% in in defense. So that that helps. The defense business does contribute to to that margin profile because those units are profitable. Now within CES, our OE volume was a little bit lower. And as you saw, the spare engine ratio did come down sequentially, but was still elevated, and that'll come keep coming down as the year progresses, but in line with what we had projected at the beginning of the year.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So nothing abnormal there. And really no change, you know, broadly speaking to the razor razor blade model. Now wide bodies are obviously, you know, those platforms are are now profitable at at the for the OE business. So that is helping here as well.

[Operator]

Our next question comes from Noah Poponak with Goldman Sachs.

[Noah Poponak, Research Analyst at Goldman Sachs]

Hey, good morning, everyone.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Hey, Noah, good morning.

[Noah Poponak, Research Analyst at Goldman Sachs]

Few questions on cash flow and its deployment. To what extent was the quarter ahead of the free cash plan? And if it was, how much of that is pure outperformance versus quarterly timing? And then I wanted to ask on the duty drawback, how long does it take to recover? And what does that mean for cash flow?

[Noah Poponak, Research Analyst at Goldman Sachs]

And then in terms of its deployment, how does the current environment change your thinking in terms of being more aggressive or more conservative on capital deployment?

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Well, maybe we could take those in reverse order, Noah. I think, as Rahul said in our prepared remarks, we continue to think that in 'twenty five, we'll have more than $8,000,000,000 of total returns between the dividend and the buyback at seven. As you would appreciate, given the comments this morning and the conviction we have about the outlook, will be thoughtful, will be opportunistic. We do have, I think it's close to $3,000,000,000 of remaining authorization in the buyback once that $7,000,000,000 that we planned for this year has been utilized. So we've got some latitude, some flexibility in that regard.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

With respect to the duty drawback, normal course we would see that cycle somewhere, call it, you know, four or five months. We'll see how things play out in in this environment, but that that'd a good planning assumption.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

And, Noah, for the on on the first quarter cash, we basically came in in line. I think we we'd expect to cut out at the levels we are at. Working capital was was a positive in the quarter. You saw the inventory build that we had. You know, it was down a little bit year over year just given the timing of cash tax payments and some of the employee liabilities that we had.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

But again, nothing unusual or unexpected. And as we sit here for the second quarter, we do expect to have a strong second quarter on cash. It should be sequentially up from first quarter, and we expect more than 100% conversion for the second quarter.

[Operator]

Our next question comes from Scott Deuschle with Deutsche Bank.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Hey, good morning.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Good morning, Scott.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Rahul, in your last Investor Day deck, had this chart that showed price increases on both LEAP OE and LTSA contracts. And I think it compared pricing from prior to 2018 to pricing in 2022 and 2023. And the step up was something to the tune of 100%, I think. I guess, can you characterize how much of that 100% increase in price you've seen at this point in the income statement versus how much is still just sitting in the backlog and remaining to be seen? Thank you.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Yeah. No, Scott, you're right. So let me take that in two pieces. One, I think you're you're right. The shop visit prices are going up, and that's just basically the end of launch period pricing.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Right? I mean, we've been obviously as we were in the 2019 to 2021 time frame, it was a very different time period. We were in that initial stages of launch as we've come out of that. The LEAP shop visit pricing has gone up since then. And but as we think about that that that price increase that we put in place, that takes a few years for for it to show up in a in a PRL, as you mentioned, just given the timing of contract.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

And, obviously, with the delays in aircraft deliveries, that cycle is a little bit elongated. So while the price we are implementing price increases for the shop visits and the portfolio accretion is at the higher price, that has not really showed up showed up in our in our p and l just yet. So take another couple of years before it starts showing up, and those contracts that we have signed recently, they go into effect.

[Operator]

Our next question comes from Seth Seifman with JPMorgan.

[Seth Seifman, Executive Director at JP Morgan]

Hey, thanks very much. Good morning.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Good morning, Seth.

[Seth Seifman, Executive Director at JP Morgan]

Good morning.

[Seth Seifman, Executive Director at JP Morgan]

Wanted to follow-up question on the drawbacks, I guess. How do you think about those working through the supply chain? Do suppliers do you have any do suppliers take care of all of that themselves? Does any of it go through you? Do you anticipate, given that some of them might not be as well capitalized, some need to support them?

[Seth Seifman, Executive Director at JP Morgan]

Or perhaps on the flip side, given the amount of inventory that you have, that there maybe an opportunity to draw a little bit less right now? And basically, how you're thinking about managing the supply chain in light of the tariffs.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Well, Seth, I I would say big big picture. There's a tremendous amount of work going on with the new tech and ops organization to strengthen our overall working relationship with with the supply base, large and small. I appreciate your comment about our current inventory levels. I don't think we're looking to make an adjustment here given some of the uncertainty because we know with the backlog that we are challenged to deliver both OE and aftermarket for the rest of this decade. We're going to need that inventory and we want to strengthen the supply base, and we're going to be looking to find ways in which we can do that amid this uncertainty.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Clearly, for the suppliers with whom we've got firm fixed contracts, that additional burden will be borne by them. We'll work through where appropriate, right, adjustments in our our overall arrangements with them. Clearly, we've got some bigger suppliers. We've got our partnership with Safran as well where it's a it's it's a different dynamic. So there are a lot of there are a lot of moving pieces here, and that's probably why we wanted to take the step that we did this morning to include a good bit of that as best we know it today into the forward guide.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Right? Again, to Doug's earlier question, we'll be advocating for a position which we believe to be very much aligned with the president's America First trade agenda. But to the extent that things don't change, to the extent that the reciprocal tariffs kick in in the back half, we wanna make sure we're ready hand in hand with our suppliers, large and small, in addition to taking the the cost and price actions that that we referenced. But it's a fluid situation, and I think that's part of what I suspect we'll be talking about through the course of the spring and summer here, not the least of which is at Paris, as we work our way through this along with everybody else.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So just to add maybe two points to what Larry said. One, we've learned a lot here, right, over the last month or so since we started working these these, you know, the offsetting actions and understanding what programs are there that we can we that we can utilize to offset the gross impact. We are sharing that with our supply base and helping them understand what we know today. Right? And I'm sure we'll learn from them as well as we compare notes.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So that's one. And the second, to your point about the duty drawbacks, think they can claim the duty drawbacks for everything that we export. But obviously, we will provide them the documentation and the support they need to avail of that program.

[Operator]

Our next question comes from Jason Gursky with Citi.

[Jason Gursky, Equity Research Analyst at Citigroup]

Hey, good morning everybody.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Good morning.

[Jason Gursky, Equity Research Analyst at Citigroup]

I just wanted to ask

[Jason Gursky, Equity Research Analyst at Citigroup]

a bigger picture question on the defense side of things. We've seen kind of a flurry of executive orders come out of the White House. And most recently, it looked, we got one related to the potential to rewrite federal acquisition regulation. So I just wanted to get a sense from you all on what impact that might have on the industrial base. The administration seems to be pitching this as kind of cutting red tape and speeding up the acquisition process.

[Jason Gursky, Equity Research Analyst at Citigroup]

But I'm wondering if that's always a good thing or are there going to be some unintended consequences that we should be on the lookout for as it looks, as we look at this kind of rewrite of FAR.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

Yeah. So Jason, I don't know if we know exactly what's on your mind, but the couple that I'm aware of, or we are aware of here, and you know, we could take it offline if that doesn't get to your question, which is, I think, the the two pieces. One is the FMS reform to support and and deliver more efficiently and effectively our export to our allies. And we at GE Aerospace are fortunate to be, you know, in a position where we have several highly capable programs that have a lot of international demand, whether it's Blackhawks, Apache's f 16, and soon to be exported, the f 15 EX. So all these improvements allow us to get our products in the in the hands of our allies, and that's a that's a really welcome improvement.

[Rahul Ghai, Senior VP & CFO at GE Aerospace]

So we we appreciate everything that's done, and that'll help support our growth, but also that of the broader broader industry. Then the other improvements in requirements and acquisition processes to define the requirements, so that elimination of any bureaucratic issues there also supports us. A few other things that are about loss programs and all that now, again, we don't have a ton of that in our portfolio, so that does not directly impact us. But again, I think holding the industry accountable for its performance is not a bad thing.

[Operator]

Our next question comes from Ron Epstein with Bank of America.

[Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch]

Hey. Good morning, guys. A little different angle on the tariff question. How are you all thinking about rare earths and some of the rare metals that you need either directly in what you do or what your suppliers need given some of the changing rules in China? I mean do you have it inventoried or do you have alternative ways to source it?

[Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch]

How are you thinking about that?

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Not as you would imagine, we've been thinking about that a lot. I'm sure everybody else in the space has. Between alternate sources and inventory positions, both our own and with our supplier partners. We don't currently see any real issues here. There's some things that we'll continue to work through.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

We'll see how this is resolved from a trade negotiation perspective, but that's not high on our worry list at the moment.

[Operator]

Our next question comes from Scott Meekus with Melius Research.

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

Good morning.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Good morning, Scott.

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

Hey, Larry. I just wanted to

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

ask a quick question on the pricing dynamic. So pricing in the aftermarket has been very healthy the past several years, but now airlines are seeing softening demand for travel. The departures at least seem to be holding up for now. So I'm

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

just wondering, how are you

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

thinking about balancing the price increases to offset tariffs and inflation while avoiding demand destruction so engines aren't seeing premature retirements?

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Scott, there's clearly a balancing act here. I think what we've always tried to do is really adhere to a handful of principles with respect to making sure we share in the value that we create, are compensated for the risks that we take on, and obviously deliver adequate returns on the investments, the long term, long cycle investments that we make. I think Rahul talked about how we're going about some of the longer term actions both around some of the new programs like LEAP, how we're approaching the CLP, the spare parts pricing later this year, and the surcharges, the hopefully temporary surcharges vis a vis the tariffs. So all of that's in play, and again, we need to balance that out in the right way given the the competing priorities here. But I think we're we're optimistic that we can we can do that smartly, fairly, constructively with with our customers around the world and do so in a way that doesn't, you say, disrupt demand.

[Blaire Shoor, Head Of Investor Relations at GE Aerospace]

Liz, I think we will wrap it up there. Larry, any final comments?

[Lawrence Culp, Chairman and CEO at GE Aerospace]

Larry, thank you. Just to close, our customers and the flying public are counting on us. We know that, and we're confident in our ability to deliver. The GE Aerospace team is up to that challenge. We continue to increase our deliveries of services and products, keeping safety and quality top of mind while developing the technologies for the future.

[Lawrence Culp, Chairman and CEO at GE Aerospace]

We appreciate your time today and your interest in GE Aerospace.

[Operator]

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

Participants

Executives

• Blaire Shoor, Head Of Investor Relations
• Lawrence Culp, Chairman and CEO
• Rahul Ghai, Senior VP & CFO

Analysts

• Douglas Harned, Managing Director at Bernstein
• Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group
• David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays
• Gautam Khanna, Managing Director at TD Cowen
• Ken Herbert, Managing Director at RBC Capital Markets
• Myles Walton, Managing Director at Wolfe Research LLC
• Noah Poponak, Research Analyst at Goldman Sachs
• Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank
• Seth Seifman, Executive Director at JP Morgan
• Jason Gursky, Equity Research Analyst at Citigroup
• Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch
• Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC