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April 14, 2024

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Ahead of tomorrow’s investor day, GE’s aerospace unit reinforced its 2024 financial targets while authorizing up to $15 billion in share repurchases. This is part of a plan to return 70% to 75% of cash to shareholders.

GE Aerospace’s revenues are ~$24 billion annually, with 30% coming from new engine sales and 70% from aftermarket services. While new aircraft production has been lower than hoped due to Airbus’s supply chain issues and Boeing’s quality problems, GE’s market share in narrow-body engines is high, buoyed by its monopoly position on the Boeing 737 MAX and a strong share of the market (with Pratt & Whitney) on the Airbus A320neo family.

GE Aerospace projected that its operating profits would rise to about $10 billion in 2028 and that it would target a dividend payout of 30% of net income.

There has been a surge in demand in the aircraft engine aftermarket for services as narrow-body airplanes remain in short supply. Airlines are keeping older narrow-body aircraft flying, most of which are powered by the CFM-56 engine family, generating additional aftermarket revenues. That aftermarket should see a low double-digit growth rate in 2024, fueling cash generation.

Once the breakout of aerospace is completed, the GE Aerospace unit should generate $6 to $6.5 billion in operating profit in 2024, see low double-digit growth in overall revenues, and generate more than $5 billion in free cash flow. Their forecast for 2025 shows operating profits rising higher to $7.1 to $7.5 billion on continued low double-digit revenue growth.

Well Positioned

GE Aerospace has a strong position in commercial aircraft, with the leading market share on new narrow-body aircraft with the LEAP engine. That engine powers 100% of the Boeing 737 MAX models and sharing the market for A320neo family aircraft with Pratt & Whitney.

In the wide-body category, its GEnx powers the majority of Boeing 787 Dreamliners, and the GE9X is the only engine for the forthcoming Boeing 777-X. It competes with Rolls-Royce, the sole source for the Airbus A330neo and A350XWB families, and has a smaller market share on the Boeing 787.

In the regional jet market, GE powers the Embraer E175, the only remaining regional jet in production after Mitsubishi dropped out. While the Embraer E2 model is powered by the Pratt & Whitney GTF, US scope clauses limiting an aircraft’s weight have left the CF-34 engine powering virtually all regional jets still in service and production.

GE also competes in the business aircraft market and is innovating through the use of additive manufacturing in its Catalyst turboprop engine, which will power the forthcoming Beechcraft Denali.

The aftermarket, which provides spares and services for existing engines, is also favorable given GE’s strong history with the CFM-56 engine on narrow-body aircraft and the CF-6 and GE-90 series on wide-bodies. As these engines require overhauls, they generate substantial parts and services revenues. Even when aircraft are retired, the engines are often overhauled and sold as spare engines, maintaining value and revenue streams.

The Bottom Line

GE Aerospace will have an attractive portfolio that is well-positioned for growth and profitability. It has strong positions in key programs, and the new Aerospace unit should perform better than GE historically, as its profitability and cash generation were dragged down by other business units within the company. As a focused aerospace competitor, the question is not whether but how well the company can capitalize on a favorable position in a growth market.

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President AirInsight Group LLC

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