GE Aerospace Credits Services For Powering Robust First Quarter

General Electric Leap 1B
Credit: General Electric

General Electric is providing an exclamation mark on its post-spinout growth plans as it releases first-quarter 2023 financial results that exceed many analyst expectations and underscore the brand’s coming focus on aerospace engines, especially aftermarket services.

“Aerospace was a significant driver with substantial Leap engine deliveries and shop-visit growth, and we’re encouraged by equipment growth in other areas such as gas power and grid,” CFO Carolina Dybeck Happe says, speaking with financial analysts in an April 25 teleconference.

According to the company, GE Aerospace delivered 14% year-over-year growth in orders, 25% better revenue and an improved operating profit of $1.3 billion. Important drivers were a “robust” market for commercial aviation momentum post-COVID; GE’s strength in services—60-70% of annualized revenue comes from aftermarket and repair work; a 53% increase in Leap output; and internal shop visits growth of 32%.

Overall, as a company—which still will include the GE Vernova power division until a spinoff by 2024—the latest period showed GE’s first positive free-cash flow in a first quarter since 2015.

The company has undertaken a reinvigorated lean-manufacturing approach in recent years, and it is paying off. Happe says adjusted costs were down over 10% year-over-year, primarily driven by ongoing cost-out efforts and interest income, as well as improvement in digital practices.

The quarterly results come about six weeks after a key investor conference at which GE leaders widely impressed analysts and stock traders with a confident outlook on aerospace. GE Chairman and CEO Larry Culp Jr.—who will hold the same positions once divestitures are completed and GE is only an aerospace business—reaffirms the positive outlook in the latest teleconference.

“Today, we’re focused on partnering with airframers, airlines and lessors to drive stability and predictability as they ramp,” Culp says. “For tomorrow, we’re focused on growing and optimizing our next generation of engines.”

Above all, the company has pivoted to make money from supporting what flies. “Services proved again they’re clearly one of our best assets, representing more than 60% of revenue, given not only the resiliency and higher margins we enjoy, but the fact they keep us in daily contact with our customers,” Culp says.

“We’re not necessarily tied to ticket prices or load factors,” he adds. “We’re tied most directly to departures. That’s a good structural aspect of our business.”

Meanwhile, the company’s supplier base also is stabilizing after pandemic problems. “In the supply chain, we saw areas of improvement with material inputs and Leap shipments improving sequentially, thanks largely to our lean efforts,” Culp says.

Still, Culp asks analysts to curb their enthusiasm for continued dramatic financial improvements on par with the first quarter. 

“We continue to try to temper expectations with respect to margin expansion this year as we go forward sequentially,” he says. “A lot of things really broke our way in the first quarter.”

Inflation will continue to be a headwind, Culp stresses, adding, “We’re encouraged by some of the moderation that we see in certain commodities, particularly in aerospace, given the fact that we’ve got so much in inventory. There’s 2022 inflation that we still need to work through with the profit and loss [accounting], which will play out through the year.”

Michael Bruno

Based in Washington, Michael Bruno is Aviation Week Network’s Executive Editor for Business. He oversees coverage of aviation, aerospace and defense businesses, supply chains and related issues.