The operator introduces the GE Aerospace First Quarter 2024 Earnings Conference Call, with Steve Winoker, Larry Culp, and Rahul Ghai as speakers. They discuss the spin-off of GE Vernova and the focus on GE Aerospace as a pure-play global leader in propulsion, services, and systems. They also mention the responsibility they have to their aerospace and defense customers and the importance of safety and quality. The successful spin of GE HealthCare last year is also mentioned.

GE has undergone a successful transformation, with a focus on improving financial position and operational execution. This has led to the creation of three independent companies that have greatly increased shareholder value. The company had a strong last quarter, with orders and revenue up, and a significant increase in profit and free cash flow. This success would not have been possible without the hard work and dedication of the GE team.

GE Aerospace had a strong performance in the first quarter, with double-digit revenue and profit growth and margin expansion. They are focused on their commercial propulsion and defense businesses, which make up a large part of their revenue. Aftermarket services are a major aspect of their business, representing 70% of their revenue. They are confident in their future trajectory and have raised their operating profit guidance. They have a simple strategy focused on safety and quality, and have implemented a lean operating model called FLIGHT DECK. They are currently focused on service and readiness to meet the high demand for their services.

GE CFM departures increased in the quarter, leading to an upward revision of expectations for the year. The company is focused on meeting this demand and improving turnaround times, particularly for the LEAP engine. The Malaysia site has seen a 30% improvement in test sale hours and is working towards a 50% improvement by year-end. This has helped close a 100-engine gap in test capacity and reduce turnaround time for LEAP engines to approximately 90 days. However, there are still challenges with material availability, and the company is intensifying efforts to work with suppliers and improve their performance through the use of FLIGHT DECK.

GE is actively working with their suppliers to identify and break constraints in order to increase production and support their customers' long-term needs. They are also investing in their manufacturing facilities and supply chain to improve quality and production. At the Singapore Airshow, they secured commitments from Thai Airways, American Airlines, and easyJet to use their engines in their new fleets. In addition, they have won a new order for F414 engines for the Korean Air Force and are investing in R&D for future technology.

GE Aerospace had a successful first fan ingestion test with their RISE fan blade and is working on a hybrid-electric power systems test bed with Sikorsky Innovations. They are focused on meeting customer expectations and delivering innovative solutions. FLIGHT DECK is helping them work as one team with one operating model and strategy. Rahul Ghai, the speaker, is excited about the future as they become a standalone company. GE Aerospace's orders and revenue grew significantly, with strong performance in both Commercial Engines & Services and Defense & Propulsion Technologies. Operating profit and margins also increased due to pricing, services volume, and favorable mix.

GE's adjusted corporate costs and elimination decreased by over 20% year-over-year. After the GE Vernova spin-off, the company expects to incur additional costs for the wind-down of GE corporate office and setting up infrastructure for GE Aerospace. However, the company's strong operational and financial performance has allowed them to return 70% to 75% of available cash to investors through a dividend increase and share buyback. The CES and DPT businesses continue to experience strong demand, with expected high single-digit growth in departures and passenger traffic. Freight demand is also expected to increase, contrary to previous expectations of a decrease.

The heightened geopolitical conflicts have increased the demand for air cargo, resulting in a 34% increase in CES orders. Customer dynamics are positive with strong order books from both airlines and airframers. The first quarter results show a 16% revenue growth, with services and equipment driven by higher pricing and strong demand for spare parts. Profit has also increased by 17%, with margins expanding due to pricing, spare part sales, and mix. However, there have been challenges with supply chain and material inputs. Overall, CES is confident in its annual guide and long-term outlook. DPT, which includes Defense & Systems and propulsion and additive technologies, also saw significant growth and profit improvement.

The defense sector is a $9 billion business with services making up 55% of the revenue. National defense budgets are growing and customers are asking for support in readiness and predictability. In the first quarter, orders increased by 34% and revenue grew by 18%. Defense unit deliveries increased by 45 engines and pricing and growth in classified programs contributed to a 17% increase in Defense & Systems revenue. Profit was $250 million, up 26% with margins expanding by 80 basis points. The company is raising its full year profit and cash guidance and expects at least low-double digit revenue growth. In CES, revenue growth is expected to be in the mid to high teens, while services revenue is expected to grow in the mid-teens. In DPT, revenue growth is projected to be in the mid to high single digits. Operating profit is now expected to be in the range of $6.2 billion to $6.6 billion.

GE Aerospace is performing well, with an increase in operating profit guidance and expected expansion in margins. As a standalone company, they are anticipating a significant increase in adjusted EPS and strong free cash flow. They have a strong franchise and competitive advantages in the aerospace industry, with a focus on reliability, safety, and innovation. With their expertise and investment capacity, they are well-positioned to deliver future technologies.

The speaker expresses confidence in the team's ability to deliver value for customers and shareholders with FLIGHT DECK as their foundation. They also take a moment to recognize Steve's contributions to GE and thank him for his dedication and partnership. Rahul also thanks Steve and praises his strategic and operating depth. Steve thanks them in return and expresses his gratitude for the opportunity to serve with them.

The speaker expresses gratitude, pride, and excitement for the teams at GE Aerospace, GE Healthcare, and GE Vernova. They ask analysts to consider their fellow analysts and save questions about GE Vernova for their upcoming earnings call. The first question is about the updated LEAP delivery guidance, which has been changed to 10-15% from 20-25%. The speaker mentions that they are well aligned with their customers and focused on safety and quality. The next question is about the increase in orders.

The speaker, Rahul Ghai, is responding to a question about the increase in commercial engines and services and defense, propulsion, and technologies. He states that most of the increase is due to volume, with pricing also contributing. He also mentions that first quarter margins were above the prior guidance and discusses the 2 points of margin headwind from the previous quarter. He explains that the pushout of LEAP volume has slightly reduced this headwind, but overall, the company is pleased with their strong start to the year and expects the momentum to continue.

The company is expecting low double-digit revenue growth and half of the profit and free cash for the first half of the year. Overall, they are projecting a linear year with profit and EPS growth of mid-teens and over 30%, respectively. The CES margins have increased by 250 basis points despite the CMR service profit adjustment. This is due to pricing and customer mix in both equipment and services, with a shift towards wide-body mix and higher spare part volume growth than shop visit growth. However, in the second half of the year, equipment growth will ramp up and the services mix will skew back towards shop visit growth, resulting in lower profit growth compared to the first half.

The speaker discusses the positive impact of the company's performance at CES on their full-year profit, and mentions a potential increase in shop visits for their LEAP engine due to strong demand and lower-than-expected retirements. They also note the potential delay of the peak for their CFM56 engine, but remain optimistic about their aftermarket business. The next question is from a representative of JPMorgan.

The speaker congratulates Steve and asks about the challenges around the company's guidance for the year, specifically regarding shop visit growth. They mention supply chain and internal productivity as potential constraints and express confidence in their ability to meet their targets. They also mention progress made with top suppliers and a stronger start to the second quarter. However, supply chain issues are still a relevant topic.

The speaker is encouraged by the progress being made and expects to continue discussing it for the foreseeable future. They mention an increase in freight as a source of growth and have raised their full year outlook from previously being down to now being up. This is partially due to an increase in air cargo demand, particularly in wide-body exposure. The impact on the CES business will be positive but may not be directly correlated in the short term. Overall, it is expected to be a positive driver for the company's financials in the long term.

The speaker addresses a question about the lower LEAP production in 2024 and 2025. They discuss how the company is calibrating with their major airframe customers and the supply base to ensure they are not overly dependent on the next quarter or two. The focus is on maintaining safety and quality while ramping up production to meet the robust skylines of both major airframers.

The spare engine ratio for FLIGHT DECK is expected to decrease gradually over the next few years, with a continued decline in the ratio. The 100% free cash flow conversion target for 2028 assumes a higher proportion of T&M contracts for LEAP engines, with 60% of shop visits being done in-house between GE Aerospace and Safran.

Robert Spingarn from Melius Research asks Larry Culp about the potential of the RISE engine to deliver a 20% improvement in fuel consumption and whether GE could become the sole engine provider for next-gen narrow bodies. Culp responds by stating that they are focused on advancing the technology and collaborating with air framers. He also mentions the need for a significant increase in efficiency and GE's intention to lead in innovation. Noah Poponak from Goldman Sachs then asks a question, to which Culp responds that he can hear him clearly.

Noah Poponak congratulates the company on completing a spin and asks Rahul about the free cash flow in the first quarter and for the full year. Rahul explains that the quarter's strong cash flow was due to earnings growth and working capital improvements, offsetting AD&A headwinds. The company also received progress payments from customers, but inventory remains a challenge. For the full year, the company expects incremental earnings growth to flow through to cash.

The company has increased its op profit by $150 million, which should result in a $100 million increase in free cash. Earnings growth and working capital improvement will continue to be the main drivers of free cash. The company is closely monitoring inventory levels and expects to see a greater than 100% conversion rate for the year. The company has announced a $650 million investment to enhance its domestic footprint and support capacity expansions, including investments in additive manufacturing and other technologies. This is in response to the demand challenges faced by the company.

The speaker discusses recent investments made by the company and emphasizes the importance of investing in their employees. They also mention upcoming announcements and the importance of training and development. A question is then asked about the supply chain and the competitive environment for their engines.

The speaker discusses the supply chain challenges and the company's win rates in the narrow-body space. They express confidence in their team and their focus on inventing the future of flight. They thank the listeners for their time and interest in the company.

This summary was generated with AI and may contain some inaccuracies.