GE Aerospace : Bernstein Strategic Decisions Conference - Transcript

Edited Transcript

GE Aerospace at Bernstein SDC

CORPORATE PARTICIPANTS

H. Lawrence Culp, Jr.

Chairman & Chief Executive Officer, GE Aerospace

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OTHER PARTICIPANTS

Douglas S. Harned

Analyst, Bernstein Institutional Services LLC

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MANAGEMENT DISCUSSION SECTION

Douglas S. Harned

Analyst, Bernstein Institutional Services LLC

Okay. Why don't we get started here? I'm Doug Harned, Bernstein's senior global aerospace and defense analyst. And I am thrilled to have back with us again, Larry Culp, CEO and Chairman of GE Aerospace. Larry has got a few things he wants to talk about first and then we'll go into a fireside chat. And I think, as you may know, you can submit if you have questions through the Pigeonhole link. But, Larry, let me turn it over to you.

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H. Lawrence Culp, Jr.

Chairman & Chief Executive Officer, GE Aerospace

Great, Doug. Thank you. With that sound, I think everybody can hear me even in the room next door. Well, good morning. We appreciate the opportunity to visit with you for a little bit this morning. Doug, it's the second time we're here. So it's good to be back as a standalone GE Aerospace. So I thought what we might do is just give you a quick update as to where things stand here with the company at the end of May and then get into the questions that are always the fun part of the session.

As we think about GE Aerospace and the journey over the last 14 months, I think it's worth repeating that our purpose has really been front and center for us, every step of the way. And as you can see on the slide, the words here are deep and meaningful. Doug is very excited when we put this slide up. We invent the future of flight. We lift people up and we bring them home safely. And that last part is meaningful to us in no small part, because we have the better part of the million passengers in the air right now with our technology underway. That's one thing to talk about safety being front and center. But for a company like ours, what's critical is to operationalize that.

And we'll talk a little bit about FLIGHT DECK, which is our proprietary lean operating model, which really gives us, I think, the wherewithal to walk the talk around SQDC, safety, quality, delivery and cost in that order every day everywhere. So there's a lot that we're proud of in terms of what has happened since we spun out on the 2nd of April a year ago. Really pleased with the effort and the momentum we have across 53,000 people around the world. But hopefully, as you see today, there's still a lot in front of us that we think is noteworthy.

We look at the company for some of you who may not be familiar with the story. We really think this is an exceptional business focused primarily on propulsion-related services and systems. As you can see, last year,

2024, we did approximately $35 billion of revenue. We had a very strong first year out as a standalone company. We think we have an incredibly resilient business, in large part because of the balanced exposure we have across widebody, narrowbody, regionals and in our military business. And I think you see that right smack in the middle here, maybe most starkly with that 70% figure. 70% of our revenue comes from repeatable, predictable recurring services. So we're out there with our customers. We're living with the product every single day. And we think that makes us better. We think that is in large part how we differentiate ourselves.

We operate in two segments, Commercial Engines & Services or CES, and Defense & Propulsion Technologies or DPT. Clearly, CES is the business that runs the overall franchise. $26 billion last year in revenue, up 13%. And here we really have, we think, the enviable position of powering three quarters of [ph] varied (00:03:52) commercial departure around the world. So that speaks to the installed base in excess of 45,000 engines across that portfolio and a business that we think gives us exposure not only to customers realities today, but how they're thinking about what comes next and with the larger service percentage here, nearly three quarters of revenue.

Again, we're out there every day and this is where we see real strength frankly. We talked at earnings back a little over a month ago, about a 30% orders growth in services in CES last year. We continued at that pace in the first quarter. And as we look out today with respect to the demand environment, we continue to be encouraged by that.

But it's not just the aftermarket. It's not just supporting the installed base. There's a lot going on here with respect to growing the installed base. You've seen a couple of noteworthy orders here of late. We had the good fortune to be with the president when he was in Qatar just two weeks ago, announcing the largest widebody engine order in our company's history in excess of 400 engines with Qatar. Around that same time, we were thrilled to win the nod to power 32 new Dreamliners, the 787s that British Airways will be buying from Boeing. So there's just a lot of momentum here as the fleets are being worked on a daily basis, but also as the airlines look to modernize and expand their fleets.

Not dissimilar dynamics in Defense & Propulsion Technologies. The smaller business you can see approaching

$10 billion in revenue. We had a good year last year, mid-single digit growth with a backlog now quickly, well, now in excess of $10 billion. We're closing in on $20 billion. This is where we really have a similarly enviable position in that we power two thirds of the US combat jet and rotorcraft fleets. So our engines are out there. We've won platforms over the last several decades, which gives us that installed base of here 25,000 engines, which we're out again servicing on a regular basis.

We are off to a good start here, a little bit more of a profitability emphasis in DPT. And we saw profit up in the first quarter of 16%. When you put it all together, a lot of momentum here in large part because of the installed base and the activity on both sides of the aisle. But again, also with a backlog overall in the $180 billion range, a lot of commitments that we're looking forward to fulfilling in the years ahead.

So how do we do that? Which really capture here, I mentioned FLIGHT DECK earlier. When we think about our strategy, simply put, we want to be the company that defines the future of flight, and that really requires us to be focused strategically on what we're doing today, tomorrow and into the future. When we talk about today, it really is all about servicing the ramp. This backlog around services that we mentioned earlier, the expansion of the fleets around the world and at the same time making sure that we're doing the same thing for our military customers that we are with our commercial customers.

With respect to tomorrow, because we're sold out in many respects through the rest of this decade, it's all about building out the capacity and the capabilities, be it a new make, be it in the aftermarket to make sure we're prepared and all the while continuing to evolve and advance the products. Time on wing really the hallmark of any

outstanding engine platform. There's a lot that we're doing to make sure in narrowbodies and widebodies and even in defense that we're continuing to progress to improve the time on wing that improves in turn the overall performance and economics for the airline.

All the while, as challenging as that is operationally, we need to make sure we continue to focus on the future of flight. We're fortunate to be here today because of the good work so many have done in the generations really that preceded us when we hand this business off we want to make sure we're well-positioned strategically on the platforms that matter around the world.

FLIGHT DECK in turn is how we make that strategy a reality. It's how we implemented it to our operating model. And it's really all about behaviors that we expect from everybody on the payroll coupled with lean operating fundamentals, which allows us to do a better job for our customers on a regular basis throughout the course of the year. And in turn, that's what you see on the far right, the results that we drive, the operating results, first and foremost, the financial and in turn, our Hoshin Kanri, our strategic breakthroughs as well as our culture. So there's a lot here, we don't have time to unpack it all. But I think the main takeaway here is that we care deeply, not only about what we're doing, but how we do it. We think the how is critical. It's what makes us sustainable. It's what makes it valuable for customers and investors alike. So we spend a lot of time on FLIGHT DECK when we're back in the office.

I mentioned the future of flight. A lot happening here. And on the commercial side, we'll be in Paris in a couple of weeks talking a lot about our RISE program, which is really a technology effort across multiple elements, our open fan rotor design, our compact core, everything that we're doing in hybrid, electrics, sustainable fuels to make sure that next generation aircraft, particularly in the narrowbody segment has GE under wing. And when you think about the fact that we're spending $3 billion a year in R&D, you might think, well, that's a lot, 6% to 8% of sales, right where you want to be. We don't think about it as a 12 month spend, right. Just as importantly is that $3 billion that we're spending, consider that we have in excess of 1.5 billion of flight hours of experience. And it's that experience is those reps coupled with the spend, coupled with the talent that we have that really has us excited about being able to define the or to invent the future of flight, particularly with the RISE program in next generation narrowbodies.

But there's plenty to do on the defense side as well. We've talked in the past about our XA100, the adaptive cycle engine that completed its test campaign just last year. We're excited about the thrust and the range capabilities that that engine offers and that's really given us the platform to pursue our XA102 program, which is tied to the Air Force's Next Generation Adaptive Propulsion Program. So as you think about everything that's happening in six generation combat, know that GE Aerospace is actively investing, actively involved with the customers to lead and invent in that realm as we are on the commercial side.

I mentioned earnings just about five, six weeks ago. At the end of April, we were pleased with the strong start to 2025. As you can see on this slide, we held our full year guidance, which we were pretty proud of when we laid it out all the more so in April, and we did that knowing that there are more macroeconomic uncertainties out there today. And I don't think we're going to change our view materially in that regard. But we're off to a good start here. In the second quarter, demand has been pretty much in line with what we would have anticipated. And maybe just as importantly as we have been working our way through the supply chain challenges, we're really encouraged by what we've seen FLIGHT DECK help us do, especially with our supply base, which will really pace not only our deliveries of new make engines, but also the completion of shop visits, the delivery of spare parts and the like. We really manage this less on a quarter-over-quarter basis, on a year-over-year, more on a sequential basis.

And a lot of what we've done with FLIGHT DECK putting the right tools in the hands of our engineers to go out in the field, work with our critical suppliers that tend to pace us has really yielded some nice results. We were doing this a bit by force, admittedly, in 2024, we've changed our organizational structure, put in a new team, which we call Technology and Operations, really bringing quality engineering and supply chain together under one roof, putting the FLIGHT DECK tools in their hands. And in turn, we're seeing real results. The results that matter most for us really are, frankly, deliveries. And just see here in April and May a double digit increase sequentially in deliveries from those critical suppliers is very gratifying. All the more is the increased certainty that we see in those deliveries. The suppliers that have been our focal points are now delivering to us 95% of the time to their commitments, and that's well over twice as much as they were doing a year ago. So we're getting more and we're getting more in a predictable fashion that really sets us up, I think, at least here in the second quarter, to have very strong year-over-year improvements, particularly in CES.

So a lot still to do. We've talked about the headwinds given some of the trade and tariff dynamics. There are a number of things that we can do within our own operations to limit that exposure in earnings. We said that would leave us with about $500 million of headwinds in 2025. We said in turn between cost and price actions, we intend to offset that. And that's really why we were able to hold the guide as opposed to perhaps take it up despite the strength that we saw in the first quarter. We'll go through 2025 in more detail in two weeks when we have an Investor Day at the Paris Air Show. Welcome, everybody, to join or dial in but a lot in addition to an update here that we're excited to share with everybody in Paris.

And then just to wrap up here. A lot has happened over the last several years at GE. A lot has happened over the last 14 months at GE Aerospace. But we really believe we are still poised to soar as a company. What you see across this slide, we think, are really the critical elements of the competitive advantages that we enjoy. We power most of the customer-preferred platforms, again across both the commercial and the military segments. Our products deliver the highest operational reliability in large part because of the underlying technology coupled with FLIGHT DECK. And again, that operational reality is paramount for airlines. That installed base tally up the two figures I cited, 70,000 engines around the world, again, give us a solid foundation exposure to what the customer needs every day. And that recurring predictable revenue stream, a 1.5 billion hours of flight experience coupled with that R&D spend, allows us to push the envelope to really drive breakthrough innovation and then again, finally, with FLIGHT DECK, we really have an operating model that allows us to operate as one team, implementing one strategy with an integrated operating model to serve our customers as best we can.

So, Doug, that's a little bit of an update, a little bit of an overview on GE Aerospace. Over to you.