GE Aerospace: GE Is Dead, Long Live GE

Core Viewpoint - General Electric (GE) has undergone significant transformation under CEO Larry Culp, focusing on Aerospace and Defense markets after divesting non-core segments, with a price target of $164 for YE24 based on a peer-derived multiple [2][33]. Company Overview - GE Aerospace, post spin-off of GE Vernova, specializes in commercial and defense aircraft engines, with total FY23 sales of $32 billion, making it the largest engine OEM [4]. - The Commercial Engines and Services segment generated $23.7 billion in FY23, accounting for approximately 72% of group revenues, and is transitioning to next-generation engines like CFM LEAP and GEnx [4][9]. - The Defense & Propulsion Technologies division contributed $9 billion, or about 28% of group revenues in FY23 [4]. Key Investment Thesis - Culp's leadership has significantly reduced GE's debt from approximately $130 billion in 2017 to around $21 billion by YE23, an 85% reduction [6]. - The successful spin-off of GE Healthcare and Vernova has streamlined GE's operations, allowing for a more focused and efficient organizational structure [5][7]. - GE's free cash flow (FCF) improved from negative to $6.6 billion in 2021 and 2022, enabling further debt reduction and operational investments [6]. Financial Performance and Projections - GE is projected to achieve total revenues of $36.6 billion in FY24, with operating profit estimates between $6.25 billion and $6.5 billion [30]. - FCF is expected to grow from $5 billion in FY24 to $7.5 billion by FY28, with a return of over 100% of excess FCF to shareholders [29][30]. - The company anticipates a starting dividend of $1.15 per share for a yield of 0.8% at current share prices, with plans for significant share buybacks [28]. Market Position and Competitive Advantage - GE holds a dominant market share of approximately 55% in the commercial engine market, significantly outperforming competitors [9]. - The company benefits from a robust aftermarket service model, with around 66% of revenues derived from MRO and spare parts, compared to an industry average of 57% [14]. - The long product lifecycle of engines allows GE to generate stable earnings over decades, with profitability expected to ramp up as new engines mature [10][16]. Industry Outlook - The aerospace industry is experiencing a strong rebound post-COVID, with global revenue passenger kilometers exceeding pre-COVID levels in Q2 2023 [26]. - GE expects continued growth in CFM-powered fleet departures, driven by rising passenger demand and a favorable industry backdrop [26]. - The company is well-positioned to capitalize on the growing demand for next-generation engines, with significant orders for the LEAP engine expected to drive future revenues [22][25].