GE Aerospace Turns Engines Into Long-Term Profits

Core Insights - GE Aerospace has transformed into a focused aerospace leader, resulting in a strong market performance and increasing stock prices due to major engine orders [1][2] Business Model - GE Aerospace's financial strength is derived from a long-term business model that prioritizes aftermarket services over initial engine sales [3][9] - The "razor and blades" model involves selling engines to secure long-term service contracts, which can last 20 to 30 years [4][6] - The company faces competition from rivals like RTX's Pratt & Whitney, leading to thin margins on initial sales but aiming for a larger installed base of approximately 45,000 commercial engines [5][6] Revenue Generation - Once engines are in service, GE Aerospace generates high-margin revenue through aftermarket services, which is the core of its profitability [7][8] - The Commercial Engines & Services segment reported an operating profit margin of 27.5% in Q1 2025, supported by a $140 billion commercial services backlog [8][9] Stock Valuation - GE Aerospace's P/E ratio of around 37 reflects its durable, high-margin services business, indicating strong future cash flow and investment potential [9][10] - The company plans to deploy over $8 billion in 2025 through dividends and share buybacks, showcasing the cash-generating power of its services model [12] Service Agreements and Parts - GE Aerospace signs Long-Term Service Agreements (LTSAs) with airlines, creating predictable revenue streams that are less cyclical than new equipment sales [11] - The demand for high-margin spare parts is increasing, with revenue from this segment growing over 20% in Q1 2025 [11] Market Outlook - Investors should focus on the growth of GE Aerospace's services backlog and the rate of global flight departures, which drive demand for its services [13]