TransDigm's 47.2% Operating Margin Crushes GE's 21.4%. Why Does GE Still Get the Higher Valuation?

The global backlog of unfilled aircraft orders tops 17,000 jets. Boeing (NYSE: BA) production delays have stretched delivery timelines, pushing the average fleet age to 15 years. Two of the biggest beneficiaries are GE Aerospace (NYSE: GE) and TransDigm Group (NYSE: TDG), but they're profiting from it in very different ways.

80,000 engines lock in decades of revenue

GE Aerospace has an installed base of about 80,000 commercial and military engines. Once an engine is on a plane, GE collects service revenue from shop visits, spares, and long-term service agreements. Service revenue reached $24 billion in 2025, up 26% year over year, and accounted for 53% of total revenue.

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Management is projecting $8.2 billion in free cash flow (FCF) for 2026, with FCF conversion above 100%. The balance sheet is clean, especially next to TransDigm's 5.8 times net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA).

That said, safety comes at a price. GE trades at about 43 times estimated 2026 earnings. The market is pricing in a pure-play razor-and-blade model and flawless execution. If the margin expansion story doesn't materialize, that valuation will come under pressure.

The parts monopoly

TransDigm is the aerospace company most investors outside the industry haven't considered. It doesn't build engines or airframes. Rather, the company makes thousands of small, mission-critical components, such as latches, valves, ignition systems, and actuators, that every aircraft needs to fly. Most of these parts are sole-source and proprietary, meaning TransDigm is often the only Federal Aviation Administration-certified supplier. When a part needs replacing, TransDigm gets the call.

That results in pricing power, which shows up in the margins and cash flow. TransDigm posted an operating margin of 47.2% in fiscal 2025 (ended Sept. 30), more than double GE's 21.4%. That margin is the envy of the industry. Toss in $5 billion returned to shareholders last year through special dividends, and that kind of cash return is hard to ignore.

The trade-off is the balance sheet. TransDigm carries more than four times GE's leverage, and its pricing model has drawn recurring scrutiny from regulators.

Platform or parts

GE's margins are solid for an industrial company, but running an engine operation costs more than making the parts. GE's advantage is scale and duration. Its installed base creates a predictable, recurring revenue stream that should grow for years as engine demand grows along with the global fleet.

TransDigm doesn't manufacture engines or compete on scale. It makes the proprietary parts that go into those engines. Lower capital intensity and disciplined pricing add up to a profit margin that few industrial companies can match.

GE generated $7.3 billion in free cash flow in fiscal 2025; TransDigm produced $1.8 billion. Scale aside, both convert earnings to FCF at rates most industrials can't touch. GE commands a premium compared to TransDigm. The gap is leverage. On a forward price-to-earnings (P/E) basis, GE sits at roughly 43 times versus TransDigm's 32 times.

The engine maker is for the investor who wants safety and is willing to pay up for it. The parts supplier is for the investor who wants profitability and can live with the debt.

Platform or parts? The answer says more about the investor than the companies.

Bryan White has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing, GE Aerospace, and TransDigm Group. The Motley Fool has a disclosure policy.