The paragraph is from the GE Aerospace First Quarter 2025 Earnings Conference Call. The operator introduces the call, and Blaire Shoor from GE Aerospace Investor Relations welcomes the participants. Chairman and CEO Larry Culp and CFO Rahul Ghai are also present. The discussion includes forward-looking statements based on the current outlook, with financial results and guidance presented on a non-GAAP basis. Larry Culp emphasizes GE Aerospace's focus on safety, service, readiness, and innovation. The company is committed to advancing flight technology for the present and future, with a significant backlog and substantial R&D investment.

The paragraph discusses GE Aerospace's strong performance in the first quarter, highlighting a 12% increase in orders and 11% revenue growth. Profits increased by 38%, leading to a 23.8% margin and a 60% rise in EPS. Both the Commercial Engines & Services and Defense & Propulsion Technologies sectors contributed significantly, with CES seeing a 31% rise in orders and a 17% revenue boost, and DPT experiencing 5% growth in defense units and a 16% profit increase. The company plans to invest $1 billion in U.S. manufacturing and hire over 5,000 workers while promoting free trade beneficial to the U.S. aerospace industry, which boasts a $75 billion trade surplus.

The administration is engaging in trade discussions to advocate for zero tariffs in the aviation sector to support the U.S. Aerospace industry. Despite this, increased tariffs are raising costs, which the company aims to mitigate through various strategies, including duty drawbacks and expanding foreign trade zones, targeting a reduction to $500 million. Additional cost-control measures and pricing adjustments are underway to offset remaining impacts. Although there has been strong order growth leading to a $140 billion backlog, supply chain issues are delaying revenue conversion, and spare parts delays have worsened. Shop visit slots are full, with a strong pipeline of engines awaiting induction. The company projects a cautious outlook with low single-digit growth in departures for the full year, despite a reduction in North American departures. They maintain a strong position and expect to meet their annual guidance, supported by a robust backlog.

The paragraph discusses the company's focus on addressing supply chain issues and meeting customer demand using the FLIGHT DECK strategy. Despite demand outpacing supply, the company improved material inputs and expects to boost output in the second quarter. Improvements were seen with priority suppliers meeting over 95% of their shipment targets. The company hosted a supplier symposium to outline growth plans and encourage investments. A joint Kaizen effort resulted in significantly increased output, demonstrating success in collaboration with suppliers. Despite a slight decline in total engine units, LEAP is identified as a critical growth area, with plans to double the fleet by the decade's end and expand capacity to meet aftermarket demand.

In the first quarter, LEAP external shop visits increased by over 60%, highlighting rapid growth in the third-party network. All engine shipments to Airbus now include a durability kit, with an upgraded HPT blade approved in December, enhancing LEAP-1A's time on wing to CFM56 levels. These simpler-designed blades are also sent to MRO shops for fleet upgrades, aiding a projected 15-20% growth in LEAP deliveries by 2025. Improvement in output is already evident and expected to accelerate. The company secured engine commitments with ANA for multiple aircraft models, received a commitment from Malaysia Aviation Group for LEAP engines, and Korean Air agreed to use GEnx and GE9X engines. Additionally, a $5 billion U.S. Air Force contract supports F110 engines' foreign military sales, with defense budgets increasing globally and ongoing investments to strengthen the company's leadership position.

The paragraph discusses recent achievements in aerospace engineering and financial performance. It highlights the completion of endurance tests for high-pressure turbine blades, initial ground runs for the T901 engine, and the Detailed Design Review for the XA102 engine. These advancements align with U.S. military objectives. Financially, the company saw strong growth in the first quarter of 2025, with significant increases in orders, revenue, and profit, mainly driven by commercial services. Profit margins expanded, and EPS rose significantly, though free cash flow decreased due to increased inventory. Overall, the company is focused on both fulfilling a large backlog and investing in future technology.

The company anticipates deploying over $8 billion to shareholders in 2025 through dividends and buybacks, while also investing in growth and innovation. Within CES, there was a 15% increase in orders, with Services up 31% and Equipment down 13%. Revenue increased by 14%, driven by Services and spare parts. CES profits rose by 35%, with margins expanding significantly. In the DPT segment, orders remained flat, with a 14% rise in Services but a decrease in Equipment. Defense demand is strong with a 1.4x book-to-bill ratio. Revenue saw a modest 1% increase, and profit grew by 16% due to customer mix and productivity.

In the paragraph, the company reports a better-than-expected first-quarter performance, with margins improving and a reduction in corporate costs by $55 million. They attribute success to stronger sales in spare parts and services and have a robust growth backlog. Despite a challenging macroeconomic environment, they maintain guidance for low double-digit revenue growth, profits of $7.8 to $8.2 billion, EPS of $5.10 to $5.45, and free cash flow of $6.3 to $6.8 billion. The company is preparing for ongoing tariffs and plans to offset these costs through SG&A controls and price increases. They are maintaining R&D spending but have adjusted full-year expectations for departure growth from mid- to low-single digits.

The paragraph discusses the impact of tariffs on spare parts and engine sales to China, noting a reduction in sales but emphasizing that demand is delayed rather than lost. The company maintains its full-year guidance for low double-digit growth in spare parts due to a strong start to the year and a substantial backlog. Internal shop visit revenue, making up about 60% of total services revenue, is expected to face minimal impact due to demand and backlog. overall, the company expects services growth in the low double digits to mid-teens and has not planned for a slowdown in delivery schedules, further tariff escalations, or a global recession. Larry Culp expresses confidence in achieving strong results, underscoring GE Aerospace's advantages, such as safety, quality, and efficiency, which foster strong customer relationships across their extensive fleet of 70,000 engines.

The paragraph is from a discussion involving Larry Culp, where Douglas Harned asks about the impact of tariffs in aviation and the advocacy for a zero-tariff approach. Larry Culp explains that the company has engaged with senior administration officials, including the President, to express their support for promoting American competitiveness and revitalizing manufacturing. He emphasizes the importance of maintaining a tariff-free regime, highlighting the $75 billion trade surplus it has helped generate since 1979.

The paragraph discusses the impact of tariffs on the company's financial performance, addressing a potential $0.5 billion headwind in 2025 despite implementing measures like duty drawbacks and foreign trade zones to mitigate it. While acknowledging uncertainty about future developments, the company remains optimistic about offsetting these impacts through cost control and price actions. They also continue to advocate for industry interests. During a Q&A, Sheila Kahyaoglu from Jefferies asks about the effect of tariffs on margins, noting a strong start to the year with a $250 million profit beat and $100 million tariff impact in Q1. Rahul Ghai responds positively about the first quarter's performance and anticipates a strong year despite the challenges.

The company aimed for a more consistent year compared to the previous one, anticipating a strong first half with increased shipments and corporate expenses. The first quarter met expectations, and similar momentum is expected in the second quarter with higher revenue and flat to slightly increased profit compared to the first quarter. This growth is primarily driven by Services, with a strong backlog in spare parts. However, the second half of the year is uncertain due to macroeconomic volatility, particularly involving tariffs in China and potential declines in North American departures. Consequently, expectations for spare engines and parts deliveries to China have been lowered, though some may be reallocated to other customers. Despite these challenges, the company maintains a forecast for low double-digit growth in spare parts for the year.

The paragraph discusses the company's optimistic outlook for year-over-year profit growth in the second half of the year, despite challenges like tariffs and macroeconomic uncertainty. It mentions an expectation of stable departures, particularly in the U.S., though there is a conservative view that departures could soften. The firm expects to provide updates at the Paris Air Show in June. David Strauss from Barclays questions the impact of flat departure growth on spare parts and shop visits, considering potential retirements, while Larry Culp affirms the current stability of departures globally and the conservative approach towards the second half of the year.

In this paragraph, the speaker addresses the anticipated impact of a downturn on their business operations, noting that it typically takes several quarters to affect activities significantly. They emphasize the strength of their existing spare parts order book and mention that a significant percentage of the second quarter's orders is already secured. Despite dealing with delinquencies, the backlog supports their ability to execute and deliver for the rest of the year. They express caution due to prevailing uncertainties and discuss pricing strategies, stating they plan to implement typical catalog price increases in the summer, expecting mid to high single-digit growth, consistent with their expectations from January.

The paragraph discusses the company's financial strategies and outlook in light of tariffs and cost pressures. They anticipate mid-single digit growth at the overall services level after accounting for revenue sharing with partners. The pricing benefits are lower for service contracts compared to spare parts. They are dealing with temporary tariff surcharges to recover current costs and are implementing SG&A cost control measures. They aim to remove these surcharges once tariffs are no longer applicable. Additionally, during a Q&A session, it was clarified that there has been no anticipation of pre-buying of spare parts despite strong purchasing in the first quarter. Rather, this demand was already accounted for in their backlog. Departures were up 4% in the first quarter, showing stable performance.

The paragraph discusses the growth trends in shop visits and revenue for the LEAP and CFM56 engines, with LEAP experiencing faster growth than CFM56. LEAP is expected to see over 30% growth in shop visits, with the external channel contributing significantly to revenue growth, accounting for about 15% of shop visit revenue compared to 10% the previous year. CFM56 is anticipated to maintain mid-single-digit growth in shop visits and revenue. Additionally, both narrow-body and wide-body aircraft are experiencing growth, with LEAP driving higher percentage growth. The conversation switches to a Q&A format where Myles Walton from Wolfe Research asks about the equipment gross margins for GE Aerospace, to which Rahul Ghai responds, noting that the higher revenue growth in the defense sector, particularly with units up 5%, contributes to the positive gross margins.

The paragraph is part of a financial results discussion where Larry Culp addresses Noah Poponak's questions about cash flow and capital deployment. Culp indicates that the company's defense business remains profitable, and although some engine volumes and spare engine ratios have decreased, this was anticipated. He remains optimistic about continued profitability, especially in widebody platforms. In terms of cash flow and its usage, he mentions that by 2025, the company plans to return over $8 billion to shareholders through dividends and buybacks, with $7 billion planned for the current year. Culp emphasizes they will be strategic and adaptable, noting they still have nearly $3 billion of buyback authorization remaining.

The paragraph discusses financial aspects related to duty drawback and cash flow expectations. It mentions that the duty drawback cycle typically takes four to five months, and the current environment's impact on this timeline is being monitored. Rahul Ghai notes that first-quarter cash flow aligned with expectations, with positive working capital and a slight inventory build due to cash tax payments and employee liabilities. The second quarter is anticipated to be strong, with cash flow expected to improve sequentially and achieve over 100% conversion. A question from Scott Deuschle of Deutsche Bank highlights a previous Investor Day presentation about significant price increases on LEAP OE and LTSA contracts. Rahul Ghai explains that shop visit prices have increased due to the conclusion of the launch period pricing from the earlier time frame, marking a shift from the initial stages of the LEAP launch.

The paragraph discusses the impact of recent price increases on the company's profits, noting that these changes will take a few years to appear in the profit and loss statement due to factors like contract timing and aircraft delivery delays. The price increases are being implemented, but their effects haven't yet been reflected financially. During a Q&A session, Seth Seifman from JPMorgan asks about the management of supply chain issues, specifically whether suppliers handle difficulties independently, the need for supplier support, and potential inventory adjustments. Larry Culp responds by highlighting efforts to improve supplier relations and indicates no current plans to adjust inventory levels despite uncertainties, given the challenge of meeting both original equipment and aftermarket demands.

The paragraph discusses the company's strategy to strengthen its supply base amid uncertainty through collaboration and adjustments in contracts, especially with larger suppliers like Safran. They are preparing for potential impacts of cyclical tariffs by including considerations in their forward guidance and aligning with the President's America-First Trade agenda. The situation is fluid, and they plan to engage with suppliers and discuss it further, particularly at the Paris event. Rahul Ghai adds that the company has learned from recent experience about offsetting actions and programs to mitigate impacts, which they're sharing with their supply base, and mentions the potential to claim duty drawbacks on exports.

The paragraph discusses the potential impact of recent executive orders from the White House on federal acquisition processes, particularly in the defense sector. Jason Gursky from Citi inquires about the implications of these changes, which aim to cut red tape and speed up the acquisition process. Rahul Ghai from GE Aerospace responds, highlighting two main aspects: reforms in Foreign Military Sales (FMS) that improve efficiency in delivering exports to international allies, and improvements in acquisition processes that eliminate bureaucratic hurdles. These changes are seen as beneficial for GE Aerospace and the broader defense industry, as they facilitate the international distribution of defense products like the Black Hawk, Apache, F-16, and F-15EX.

The paragraph is part of a conference call where Ron Epstein from Bank of America asks about the company's strategy for sourcing rare earths and metals amid changing trade rules in China. Larry Culp responds that the company has considered this issue, exploring alternate sourcing and maintaining inventory levels with suppliers, and does not currently see significant problems. Scott Mikus from Melius Research then asks about pricing strategies considering the current trends in aftermarket pricing and potential softening in airline demand. Larry Culp acknowledges the challenge of balancing price increases to manage tariffs and inflation while avoiding adverse effects on demand and premature engine retirements.

The paragraph discusses GE Aerospace's commitment to key principles such as sharing value, compensating for risks, and delivering returns on long-term investments. It mentions initiatives like the LEAP program, CLP approach, spare parts pricing, and temporary surcharges related to tariffs. The focus is on balancing these aspects amid competing priorities, maintaining good customer relations, and avoiding demand disruption. Larry Culp concludes by expressing confidence in meeting customer expectations and ensuring safety and quality in GE Aerospace's services and products while developing future technologies. The conference call is then concluded by the operator.

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