GE (GE) Q4 2025 Earnings Call Transcript

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Date

Jan. 22, 2026 at 7:30 a.m. ET

Call participants

• Chairman & Chief Executive Officer — H. Lawrence Culp
• Chief Financial Officer — Rahul Ghai
• Vice President, Investor Relations — Blaire Shoor

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Takeaways

• Orders -- Up 74% in the fourth quarter, with the Commercial Engines & Services (CES) segment up 76% and Defense & Propulsion Technologies (DPT) up 61%, reflecting sustained demand acceleration.
• Revenue -- Increased 20% in the quarter, achieving double-digit growth in both CES (up 24%) and DPT (up 13%).
• Operating profit -- Rose 14% in the quarter to $2.3 billion; full-year company-wide operating profit advanced 25% to $9.1 billion, with CES profit up 26% to $8.9 billion and DPT profit up 22% to $1.3 billion.
• EPS -- Increased 19% to $1.57 for the quarter, with annual EPS rising 38% to $6.37.
• Free cash flow -- Climbed 15% in the quarter to $1.8 billion and 24% for the year to $7.7 billion, with conversion over 100% in the quarter and over 110% for the year.
• Services growth -- CES services revenue up 26% for the year, driven by 24% growth in internal shop visit revenue and 27% LEAP internal shop visit volume increase; spare parts revenue advanced over 25%.
• Commercial deliveries -- Commercial unit deliveries grew 25% for the year, including LEAP deliveries up 28% to over 1,800 units, a new program record.
• Defense output -- Defense engine deliveries increased 30% year over year; DPT full-year backlog rose to $21 billion, up nearly $3 billion.
• Margin trends -- Full-year company margin improved 70 basis points to 21.4%; CES margin up 40 basis points to 26.6%, while DPT margin expanded 110 basis points to 12.3% for the year.
• Backlog -- Total company backlog reached approximately $190 billion, up nearly $20 billion from the prior year.
• 2026 guidance -- Projected low double-digit revenue growth, operating profit of $9.85 billion to $10.25 billion, EPS of $7.10 to $7.40 (up nearly 15% at midpoint), and free cash flow of $8 billion to $8.4 billion with maintained high conversion.
• LEAP internal shop visits -- Anticipated 25% increase in 2026, supported by expansion of MRO network and ongoing investment.
• Profitability milestones -- CFO Ghai stated, "We expect Leap OE to be profitable in 2026 as per our prior plans."
• GE9X losses -- "losses on the 9x programs will double year over year." in 2026, per CFO Ghai, following a couple of $100 million in losses for 2025 in line with expectations.
• Cost and efficiency initiatives -- Material input from priority suppliers grew over 40% year over year, supporting higher output and improved turnaround times for LEAP, CFM56, and GE90 by over 10% in the quarter.
• Capacity expansion -- Added MTU Dallas as sixth premier MRO partner, with third-party shop visits now representing 15% of LEAP volume; $500 million of over $1 billion planned MRO investment dedicated to LEAP, expected to roughly double LEAP internal capacity.
• R&D spend -- Maintaining nearly $3 billion annually, focused on improving engine durability, efficiency, and next-generation propulsion, including hybrid electric initiatives and the RISE program.
• Segment reporting changes -- Aero derivative engines moving from CES to DPT, shifting approximately $1.4 billion revenue and several hundred million dollars of profit; re-segmentation reflected in 2025 segment financials.
• CFM56 retirements and shop visits -- CFM56 retirements ended 2025 at about 1.5% of the fleet and are expected to remain near 2% for 2026, with shop visits expected in the 2,300-2,400 range through 2028.

Summary

General Electric (NYSE:GE) achieved significant double-digit growth across orders, revenue, operating profit, and free cash flow in its aerospace business, outpacing previous guidance and driven by robust demand in both commercial and defense segments. Management detailed strategic operational advancements, including improved supplier input, accelerated turnaround times, and expanded MRO network capacity, which elevated output and service volume. Organizational changes, such as integrating TNO into CES and updated segment reporting, were implemented to boost lifecycle management and supply chain synergy. GE Aerospace outlined a near-term outlook for continued revenue, profit, and cash flow expansion in 2026, with key product milestones including LEAP original equipment profitability and projected doubling of GE9X program losses, as well as ongoing productivity and margin stabilization efforts. Full-year guidance is supported by a $190 billion backlog and sustained high R&D investment targeting advanced propulsion technologies and aftermarket support.

• During fiscal Q4 ended Dec. 31, 2025, both segments exceeded double-digit growth rates, with CES equipment deliveries rising 40% and LEAP engine shipments up 49% in the quarter.
• CFO Ghai confirmed, "if you put all that together, the total company level we expect high teens revenue growth for the company," implying sequential acceleration across both core segments.
• Material input improvement from suppliers exceeded 40% for 2025 and achieved over 90% commitment level, directly enhancing operational throughput and productivity.
• A new agreement with AFTIA Aviation increases MRO access to OEM materials for CFM56 engines, strengthening aftermarket support options.
• Hybrid electric engine architecture completed ground testing, marking a "first-of-its-kind propulsion milestone" and advancing GE Aerospace's transition toward scalable electrification.
• Backlog was strengthened by recent customer commitments: Riyadh Air (120 LEAP 1A), fly Dubai (60 GE NX), Pegasus Airlines (up to 300 LEAP 1B), and Delta (30 GE NX for Boeing 787s).
• Corporate cost is forecast at $1.2 billion to $1.3 billion for 2026, attributed to lower interest income, increased AI investments, and larger internal eliminations.
• LEAP services profitability is expected to improve with increased external channel shop visits and expanded repair catalog, supporting margin resilience even as OE shipments rise.
• CFM56 shop visits for 2026 are projected at 2,300-2,400 annually through 2028, exceeding previous July guidance, due to lower-than-expected retirement rates and continued operational demand.
• Management stated there are "I would say on balance, we were with a lot of customers just this past weekend. They want more, and they want it faster without any compromise respect to safety or quality. It's a fair ask and one that the team is committed to delivering on in the new year here." across wide-body and CFM56 aftermarket activity.

Industry glossary

• LEAP: An advanced high-bypass turbofan engine platform jointly developed by GE Aerospace and Safran for single-aisle aircraft, notably the Airbus A320neo and Boeing 737 MAX.
• MRO: Maintenance, Repair, and Overhaul network providing engine servicing and support, both internally within GE and through third-party partners.
• OE: Original Equipment; in this context, sales or shipments of new aircraft engines by GE Aerospace to manufacturers or airlines.
• Shop visit: A scheduled engine maintenance event where an engine is removed from the aircraft for major service, refurbishment, or repair.
• GE9X: GE Aerospace's next-generation large turbofan engine designed exclusively for the Boeing 777X long-haul wide-body aircraft.
• CMR: Change in Maintenance Reserve; a financial charge related to expected future maintenance costs recorded in prior periods.
• INEX/NINEX: Programs or sales categories referenced for equipment and profit reporting, likely internal GE terminology for specific engine models; context from transcript needed for precise product identification.
• Flight deck: GE's internal program for operational excellence focused on improving safety, quality, delivery, and cost performance metrics.
• TNO: Technology and Operations; an organizational unit within GE Aerospace integrating product line, engineering, and supply chain functions to manage the end-to-end engine lifecycle.
• Book-to-bill: The ratio of new orders ("bookings") received to the amount of products/services billed within the same period, representing demand strength relative to sales output.
• AD & A: Acronym referenced in the context of working capital and balance sheet management; clarification requires further company-specific disclosure.

Full Conference Call Transcript

H. Lawrence Culp: Larry, thanks, and good morning, everyone. I would like to begin with our purpose. We invent the future of flight, lift people up, and bring them home safely. Right now, nearly one million people are in flight with our technology under wing, connecting people and goods worldwide. We play a vital role in powering the warfighters who defend freedom. And while we work to deliver for our customers today, we are also inventing technology that will propel the industry forward tomorrow. Our purpose is our call to action, and I couldn't be prouder of what our team achieved in 2025 and how we got there with our culture of respect for people, being customer-driven, and continuous improvement.

Turning to our results on slide four, 2025 was an outstanding year for GE Aerospace. We made operational progress, delivered on our financial commitments, and continued to invest in our future. The fourth quarter was a strong finish to the year. Orders were up 74%, reflecting continued robust demand for our services and equipment. Revenue increased 20% with double-digit growth in both segments. EPS was up 19% to $1.57 and free cash flow grew 15%. For the full year, we drove substantial improvement across all key metrics. Orders were up 32%, Revenue increased 21%, Operating profit grew $1.8 billion, and free cash flow was up $1.5 billion.

In CES, orders were up 35%, and revenue grew 24%, including services orders up 27% and revenue up 26%. This supported our profit growing 26% to $8.9 billion. In DPT, orders increased 19% and revenue was up 11% with increased deliveries in defense. Profit increased 22% to $1.3 billion. Our performance reflects the impact of flight deck, driving incremental gains that compounded into meaningful improvements. This enables us to accelerate output to deliver on our roughly $190 billion backlog, which is up nearly $20 billion over the last year.

We are also investing to improve time on wing and reduce the cost of ownership to deliver value to our customers, supporting growth today, tomorrow, and into the future. I want to thank the entire GE Aerospace team, our suppliers, and our customers who put their trust in us. Looking to 2026, we are poised for another year of substantial revenue, EPS, and cash growth. Demand remains robust with 2025 orders up 32% and continued backlog growth. This supports our expectation for revenue to be up low double digits, including commercial services up mid-teens. We expect operating profit of $9.85 billion to $10.25 billion, up a billion dollars at the midpoint.

This translates EPS of $7.10 to $7.40, up nearly 15% at the midpoint. And we expect to generate $8 billion to $8.4 billion of free cash flow with conversion remaining well above 100%.

This outlook builds on the progress we made in '24 and '25. We expect to deliver mid-teens revenue growth between '24 and '26 compounded and $10 billion of profit in '26, two years earlier than our outlook had been. We continue to convert this into cash, expecting to generate more than $20 billion of cash between '24 and '26 to reinvest in our future, including in US manufacturing to support both our commercial and defense customers. GE Aerospace is an exceptional franchise, servicing and growing the industry's most extensive installed base of 80,000 engines. As we further embed flight deck, we will unlock greater value for our customers and shareholders.

Turning to Slide six, in their first year, our technology and operations, or T&O, team made a meaningful impact. We partnered more effectively with our suppliers, resulting in material input from our priority suppliers growing over 40% year-over-year in 2025 and up double digits sequentially in the fourth quarter, both translating to higher outputs. While we're making progress, we know our customers need more from us. To further accelerate our progress in 2026, we're expanding CES to include TNO, now led by Muhammad Ali. Integrating our product line, engineering, and supply chain teams will improve our end-to-end engine lifecycle management.

We are also elevating our customer-facing teams led by Jason Tonich, now reporting directly to me, aligned with our customer-driven approach.

These changes will enable greater cross-functional problem-solving, agility, and alignment to deliver for our customers. I also want to take a moment to thank Russell Stokes who announced he will retire from GE Aerospace in July after twenty-nine years of service. His continuous improvement mindset and passion for developing leaders helped build this world-class business. Russell was one of the first leaders I met here at GE and has been a critical partner over the last seven years. We wish him nothing but success in his next chapter. These changes along with flight deck will further support growth in deliveries in 2026. Across our MRO network, we are removing waste to improve shop visit output and turnaround times.

For example, we are converting from batch to flow production, which supported LEAP, CFM 56, and GE 90 turnaround times improving over 10% year-over-year in the fourth quarter.

Additionally, at our Wales facility, CFM 56 turnaround time improved by 20%, and at Selma, we sustained turnaround times below eighty days. This enabled us to deliver our highest LEAP shop visit output of the year. With the LEAP installed base expected to roughly triple between '24 and '30, we're expanding capacity across our global MRO network to support aftermarket demand. In 2025, we added MTU Dallas as our sixth premier MRO partner, supporting third-party shop visit growth now representing around 15% of total LEAP shop visits. We're dedicating approximately $500 million of our more than $1 billion of investment in MRO to LEAP.

This includes expanding several MRO sites, including Malaysia, Selma, and Dallas, and a new on-wing support facility in Dubai. We expect these investments will roughly double LEAP's internal capacity.

Taken together, these actions drove meaningful progress in services and equipment output in 2025. CES services revenue increased 26% with internal shop visit revenue up 24%, including LEAP internal shop visit volume up 27%. Spare parts revenue grew more than 25%. Deliveries across commercial and defense increased 26% for the year, including a strong finish with 8% sequential growth in the fourth quarter. Commercial units increased 25%, including LEAP up 28%, exceeding 1,800 units, a record output for the program. Defense engine deliveries increased 30%. While 2025 marked a year of progress, we know there is more to do to meet customer demand. And I am confident we will deliver.

Turning to slide seven, one of the behaviors that guides us is being customer-driven in all that we do. We are leveraging over 2.3 billion flight hours and nearly $3 billion in annual R&D to drive meaningful improvement for our customers. Our focus remains on delivering mature levels of time on wing and lowering costs of ownership. In November, the GE NX fleet leader equipped with the upgraded HBT blade, which has improved time on wing over two and a half times in hot and harsh environments, achieved a new milestone surpassing 4,000 cycles.

Informed by our progress with the GE NX, the LEAP 1A durability kit will improve time on wing by more than two times, matching our industry-leading CFM 56 performance. This is now incorporated in all LEAP 1A new engine deliveries and shop visits. With nearly 1,500 kits shipped since certification. In addition to improved durability, we're also expanding our LEAP repair catalog, which will lower cost of ownership and improve turnaround times. In '25, LEAP parts certified for repair increased 20% and we expect continued growth in '26. Combined with our progress on delivery, we're actively working to meet customer expectations on LEAP.

At the same time, utilization of our mature engines remains robust. CFM 56 is the most widely owned and operated engine in commercial aviation. With retirements in '25 consistent with '24 levels. The third-party MRO ecosystem provides customers with optionality for servicing their fleets, supporting higher asset values and lowering costs of ownership. We continue to strengthen MRO access to OEM materials to support further CFM 56 longevity. Last quarter, for example, we reached a materials agreement with AFTIA Aviation to support service of its growing fleet of CFM 56 engines.

We are also progressing the next generation of engines. We recently completed a ground test campaign demonstrating our first hybrid electric narrow body engine architecture. This first-of-its-kind propulsion milestone demonstrates systems integration, advancing the technology from concept to practical, scalable application. As we deliver greater customer value and advanced breakthrough technologies, we are growing our backlog. At the Dubai Air Show, we recorded over 500 engine wins across narrow bodies and wide bodies, including Riyadh Air's commitment for 120 LEAP 1A engines and fly Dubai's selection of 60 GE NX engines. Additionally, Pegasus Airlines committed to up to 300 LEAP 1B engines to power its future Boeing 737-10 fleet.

And we are honored that Delta, a new GE NX customer, selected us to power and service their new fleet of 30 Boeing 787s.

In defense, Destin Aeronautics ordered 113 F404 engines for the Tejas fighter jets. Demonstrating our position as a trusted partner for allied fighter programs. Overall, we're driving progress, improving field performance, turnaround times, and advancing future propulsion technologies. We're well-positioned to strengthen our leadership across both the commercial and defense sectors in 2026. Rahul, over to you.

Rahul Ghai: Larry, thank you, and good morning, everyone. We closed out 2025 with another strong quarter. Fourth quarter orders were up 74% with CES up 76% and DPT up 61%. Revenue was up 20%, led by CES Services up 31%. Operating profit was $2.3 billion, up 14%. Services volume, productivity, and price were partially offset by the impact of lower spare engine ratios, OE growth including 9x shipments, and investments. Margins, as per prior guidance, were down 90 basis points to 19.2%. EPS was $1.57, up 19% from increased operating profit, a lower tax rate, and a reduced share count. Free cash flow was $1.8 billion, up 15%, largely driven by higher earnings with over 100% conversion.

For the year, our results exceeded the high end of our guidance on all key metrics. Orders were up 32%, with commercial services orders up 27% and total equipment up 48%. Revenue increased 21% from commercial services, which was up 26%, and higher deliveries of both commercial and defense units. Operating profit increased 25% to $9.1 billion with margins expanding 70 basis points to 21.4% as commercial services volume and price offset OE growth and investments. EPS increased 38% to $6.37. Free cash flow grew 24% or $1.5 billion to $7.7 billion with conversion over 110%, driven by earnings growth and continued contract asset favorability. Which was partially offset by inventory growth to support continued output increases in 2026.

Overall, very strong performance for GE Aerospace positioning us well for 2026.

Turning to our segments, starting with CES. In the fourth quarter, orders were up 76%, with services up 18% and equipment more than doubling. Revenue increased 24%. Services were up 31%, internal shop visit revenue grew 30% from higher volume and increased work scopes. Spare parts sales were up over 25% as improved material availability supported increased output. Equipment grew 7% with engine deliveries up 40%, including LEAP up 49%. This more than offset a decline in spare engine ratio due to the timing of back-end loaded spare engine deliveries in 2024. For the year, the spare engine ratio was lower than '24 as planned.

Profit was $2.3 billion, up 5% from higher services volume with improved margins, price, and favorable mix. This was partially offset by the impact of lower spare engine ratio, higher installed shipments, including INEX, and an increase in R&D.

As expected, margins were down 420 basis points to 24%. For the year, CES delivered outstanding results with orders growing 35% and services revenue and engine output both up roughly 25%. This supported profit growing 26% to $8.9 billion and margins expanding 40 basis points to 26.6%, from services growth, productivity, and price. Moving to DPT. Orders were up 61% with defense book-to-bill above two. Revenue grew 13%, with defense and systems revenue up 2%. Defense units were down 7% due to a difficult comparison, which was more than offset by price and customer mix.

Sequentially, this was the third consecutive quarter of strong defense engine shipments with full-year deliveries up 30%. Propulsion and additive technologies grew 33%, led by higher commercial and military volume at Avio. Profit was up 5% from volume, favorable mix, and price that were partially offset by investments and inflation. Margins were down 70 basis points to 8.9%. DPT also had a solid year, with orders up 19% and defense book-to-bill 1.5, with backlog now at $21 billion, up nearly $3 billion. Improved output reported revenue growing 11%, Profit was $1.3 billion with margins up 110 basis points to 12.3%, from volume, mix, and price.

Going deeper into the drivers of our 38% EPS growth for the year, growth in operating profit drove $1.32 or 75% of the improvement in EPS, with the increased profit in CES and DPT partially offset by higher corporate costs and eliminations. Corporate cost was roughly $570 million, up about $170 million due to lower interest income. Eliminations were about $530 million, up approximately $70 million. Lower tax rate, a reduction in share count, and interest expense accounted for an additional 46¢ of EPS growth. Tax rate was down three points for the year, primarily from the benefits of long-term tax planning projects. And share count reduced by 26 million.

Turning to Slide 12. We are updating our segment reporting to reflect the organizational changes announced last week. Importantly, there is no change to total company metrics. Aero derivative engines, which were previously reported in CES, will be included with DPT to drive greater supply chain alignment with the marine and mobility business. As a result, roughly $1.4 billion of revenue and a couple of $100 million of profit will move from CES to DPT. With the expansion of CES to include TNO, we are also transitioning the cost of remaining sites and external engineering revenue to their respective businesses. This results in a small change to corporate cost and eliminations.

The re-segmentation impact is reflected in the 2025 segment financials on the left side of the page. We've also included a preliminary bridge in the appendix and plan to provide recast segment financials for first-quarter earnings.

Turning to guidance, starting with CES. We expect mid-teens revenue growth, including services up mid-teens. This includes internal shop visit revenue and spare parts revenue, both up mid-teens, from low double-digit revenue, low double-digit engine removals combined with higher work scopes and price. LEAP internal shop visits are expected to grow 25%. We expect equipment up mid to high teens, including LEAP deliveries up 15% with higher growth from wide-body programs. We expect $9.6 billion to $9.9 billion of profit, up about $1.2 billion at the midpoint. This reflects the benefit of services growth and price, which is partially offset by OE growth, including NINEX, a lower spare engine ratio, and continued investments.

In DPT, we expect mid to high single-digit revenue growth and profit of $1.55 billion to $1.65 billion. Higher deliveries will be partially offset by inflation, mix, and investments. Corporate costs and eliminations are up year over year to $1.2 billion to $1.3 billion from lower interest income, AI investments, and higher eliminations from internal BAT growth. In total, we expect low double-digit revenue growth for the company, with profit in the range of $9.85 billion to $10.25 billion, up $1 billion or more than 10% at the midpoint.

Further unpacking the drivers of EPS and free cash flow growth, we expect EPS in the range of $7.10 to $7.40, up nearly 15% at the midpoint. About 85% of the improvement will be from higher operating profit. The balance will be from a marginal improvement in the tax rate to below 17% and a reduction of 18 million shares from our previously completed and announced capital allocation actions. Interest expense is expected to be roughly $900 million. We expect to generate $8 billion to $8.4 billion of free cash flow, primarily from higher earnings. Working capital and AD & A combined will be a source year over year from slower inventory growth.

We continue to expect CapEx at roughly 3% of sales. Overall, we expect another year of conversion solidly above 100%. Taken together, GE Aerospace is poised for another year of solid growth ahead. With that, Larry, back to you.

H. Lawrence Culp: Rahul, thank you. 2025 was another outstanding year. Our sustained competitive advantages support our leadership positions across both commercial and defense. With the industry's largest fleet of 80,000 engines and growing, we've accumulated over 2.3 billion flight hours. This experience keeps us close to our customers through decade-long life cycles, building enduring relationships, and making us the partner of choice. This field experience, combined with our nearly $3 billion in annual R&D investments, allows us to drive continuous improvement across our services and products, enhancing time on wing and lowering cost of ownership. As a result, across our narrow body, wide body, regional, and defense platforms, we offer the best-performing products under wing.

Our world-class engineering teams develop next-gen technology to improve durability, efficiency, and turnaround times. Along with advanced defense capabilities.

Through flight deck, we're turning strategy into results with a focus on safety, quality, delivery, and cost always. In that order. Stepping back, the GE Aerospace team is focused and ready for what's ahead. In 2026, we're well-positioned to deliver for our customers and shareholders, and I'm confident in our trajectory. With that, Blair, let's go to questions.

Blaire Shoor: Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so that we can get to as many as possible. Liz, can you please open the line?

Operator: Ladies and gentlemen, if you wish to ask a question, or if you wish to withdraw your question or your question has already been answered, please press 11 again. Our first question comes from John Godden of Citigroup. Your line is now open.

John Godden: I was hoping you could elaborate a bit on the commercial aftermarket backdrop. Obviously, it was a great services quarter with revenue growth accelerating versus quarter. So I'm just curious to what extent this momentum has carried through to start the year. And if you could just unpack some of the assumptions underlying the mid-teen services growth guidance for 2026. Is there any room there to outperform if recent momentum continues?

H. Lawrence Culp: Well, John, good morning. Thanks for getting us started. You know, I would say we haven't seen anything here at the beginning of the year that gives us pause relative to the tailwinds, the momentum that you referenced continuing. Right? We like, we've all seen Delta is united out. Since in the last week, for example, I think talking confidently about 2026.

So when you couple their outlook, the fact that we come into the year with a $190 billion of backlog, we know our share of cycles with Leap in particular in the narrow body segment being up and the opportunities to leverage that underlying unit volume in the aftermarket with both expanded workscopes in both narrow and wide body as well as price, we feel like we have another very strong commercial services year supporting the aftermarket. Again, I think we've commented in the prepared remarks at a rate that should be up mid-teens. Will we be able to do better than that? We're certainly going to aim to do that.

But as we talk through the course of 2025, we're not, I think, particularly concerned about the demand environment it's really all about our ability to move spare parts out to third parties to complete our own shop visits. And while we were pleased with the sequential and the year-over-year numbers that we cited in the fourth quarter, there's much more to do here in 2026. It's a bit of what undergirds the organizational move that we announced.

And to the extent that we can continue to make progress, and we think we will, perhaps not in line with the 40% bump we saw from our prior suppliers last year on a full year basis, I think we'll be able to satisfy that demand better than we did in 2025.

Rahul, anything you'd add there?

Rahul Ghai: Yeah, just a couple of things. John, welcome to our call here. You know, just as we said in our prepared remarks, we expect both shop visits and spare parts to be up kind of the same range as mid-teens as the overall services growth. On spare parts first, our delinquency when we ended 2025 was up 50% over where we ended '24. So as Larry mentioned, strong demand environment. And you know, as you think about the spare parts growth, the spare parts growth is going to be primarily driven by narrow body.

And that's coming as a leap external channel continues to grow, and about more than 15% of the LEAP shop visits are now performed by a third-party channel partner. And CFM56 continues to be strong as well. Larry mentioned in his prepared remarks about how we ended 25 retirements, which were similar to 24. And as we think about 2026, we expect retirements to be in the 2% range. Our prior expectations were a two to 3% range. So trending a little bit better, and that puts CFM shop visits in the 23 to 2,400 range. Between 26 and 28. So, external demand environment looks good. SHOP is the same thing. You know, we're expecting double-digit removals.

This year from engines that they've already flown. Plus the work scope continues to increase a little bit of price. So all that had to that 15% growth that we mentioned on shop visits. So overall, we feel good about the services outlook for '26.

Operator: The next question comes from Myles Walton with Wolfe Research. Your line is now open.

Myles Walton: Good morning.

H. Lawrence Culp: Good morning, Miles.

Myles Walton: I was wondering on the leap profitability on the original equipment side. Are we crossing the root count of profit or breakeven in '26 still? And, Larry, you must be feeling a lot better about the trajectory to get output on a leap to 2,500 by 2028. What, if anything, is required from an investment within the supply chain, not the MRO network, but more the OE side of the supply chain still to get to where manufacturers want the production rates?

H. Lawrence Culp: Well, Miles, from a NewMake perspective, and as you know as well as anyone, the supply chain supports the new make and also the aftermarket. So no one can really isolate the new make demand and invest for that without being mindful of the aftermarket demand as well. I think we have improved over the course of 2025 our visibility further out and deeper into the supply chain, further out time-wise, deeper into the supply chain with respect to readiness, to satisfy our needs to serve both the airlines and the airframers. There will be capital investment in various places. I'll let different suppliers and different commodity categories speak to their own plans.

But I think we're confident that as we move forward here through the rest of the decade, we'll be able to satisfy what the airlines need in the aftermarket and what the airframers are looking to do for the airlines as well. Right, from a new delivery, from a modernization and expansion perspective. But there's work to do. Again, I don't think we're going to be up 40% every year, not that we have to, but I feel very good that with the body of work we put in 2025, we're poised to step up again with the supply base, be it process improvement, be it capital expansion, and the like.

To keep pace with these considerable tailwinds that we're all, fortunately, exposed to.

Rahul Ghai: And, Miles, to answer your question on the lead profitability, yes. We expect Leap OE to be profitable in 2026 as per our prior plans.

Operator: The next question comes from Douglas Harned with Bernstein. Your line is now open.

Douglas Harned: Good morning, thank you.

H. Lawrence Culp: Good morning, Doug.

Douglas Harned: You talked about the improvement in turnaround times across the board, like LEAP, CFM 56, GE 90, by about 10%. And LEAP, I can see that. But CFM 56 GE 90, very, you know, very mature engines, is this turnaround time improvement, is that both for internal and third-party shop visits? And, you know, what levers enable you to do that? And if I can just add to that, how should we see that improvement reflected in financials since CFM 56 is largely time and materials and GE 90, you'd be on CSAs, I would assume.

H. Lawrence Culp: Doug, it is internally oriented number. Right? We watch cat turnaround time closely at every one of our shops across platforms across the network. The way I think about TAD improvement, it's really driven by two things. One, material availability. And two, efficient execution of our standard work on the shop floor. We've talked a lot about supply chain. You've written about it as well. To the extent that we are getting not only more from our suppliers but getting what we get in a more predictable way the teams on the shop floor are better able to execute bring down turnaround times. We talked about 40% year-over-year improvement from our priority suppliers.

We talk about those suppliers delivering it at a 90% plus level to their commitments. Takes a lot of noise out of the system. That is an unlock for us. I think to take full advantage of the process improvements by way of flight deck that we've laid in the to the various shops. It's not equally spread across every shop, but those turnaround times, I think, that you see improve in the fourth quarter, for example, really is a combination of better input materials and better execution. How does that show up in the financials? Well, we should be getting more shop visits completed. In terms of the top line, but also we believe it's a considerable productivity unlock.

If a team on the floor has to stop a shop visit, if they are idle waiting for a part delivery, that's obviously unproductive time. If they have everything they need, from induction to certification, we will see. And I think I have seen the early, early signs of real productivity bumps there as well.

Operator: The next question comes from Scott Deuschle with Deutsche Bank.

Scott Deuschle: Good morning. Rahul, can you quantify what the GE9X headwind ended up being in 2025? And then what the incremental profit headwind is from NYMEX in 2026. And if you could comment on the quarterly earnings cadence, at CES in '26 as well, that would be helpful. So the question is around 9x losses. And the earnings cadence. Thank you.

Rahul Ghai: So, Scott, on 9x, our losses ended. I mean, we said a couple of $100 million of losses in 2025, and we landed right about there. So right in line with our expectations. And for '26, as we previously said, we are going to ship more engines in '26, and the volume continues to grow up. And with that, our losses on the 9x programs will double year over year. So our current guidance for '26 incorporates those losses getting to that level. So all consistent with what we said previously.

On the first quarter, let me just elevate the question a little bit, Scott, and just kind of speak to total company here, including CES. I mean, first, we expect a solid start to the year. As you probably remember, our output started out slow last year in the first quarter, so we expect our engine and shop visit output to grow substantially here in the first quarter. And that will drive our revenue growth. And we expect kind of, if you put all that together, the total company level we expect high teens revenue growth for the company. With both CES and DPT above their respective full-year guides. So the stronger start is going to come from both segments.

And now getting into the CES, services, you know, we ended 25 27% orders growth. So we're entering '26 with a strong backlog, and about, you know, 85% of the parts that the spare parts that we need to ship in the first quarter are already in the backlog. And then we had a CMR charge in the first quarter of last year that we're not expecting to repeat. So it'll be a strong start for us for our services business. And commercial equipment output would be strong. That'll drive revenue growth. But, if you know, the first quarter last year was our strongest spare engine shipment quarter.

So there'll be some impact from that here as we think the year-over-year revenue growth. But still, it'll be a strong revenue performance despite that. And then there will be 9x shipments here in the first quarter as well, which we did not have in 2025. And then DPT, you know, they're on a good run here on sequential performance. Expect that to continue and that should drive revenue growth for the DPT segment.

As we switch to profit, expect that profit to be up year-over-year growth primarily from the services growth and the absence of the CMR chart that we took which will offset the higher deliveries and the 9x shipments. But because of the lower spare engine ratio and 9x shipments, our total margins for the business will be kind of in line to slightly better or marginally better here versus where we ended 2025. And free cash flow, you know, we expect certain payments here in the first quarter, so free cash flow will be down year over year. But overall, as we think about revenue, we think about profit, we expect to get out of the gate here strong.

Operator: The next question comes from Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu: Good morning, Larry, Rahul. Maybe Rahul, since you were just speaking about CS profit guidance for 2026, if you could walk us through margins at the midpoint, it implies margins are flat. I know you gave a few pieces the GE9X headwinds. How are you thinking about shipments there? What are you seeing offset the goodness to help overcome some of the mix issues you're facing with equipment growth outpacing services? 9x headwind, as you mentioned, spares ratio, and just LEAP growing double digits while CFM is flat? How do we think about that?

Rahul Ghai: Yeah, I think, Sheila, you kind of outlined some of the key drivers here in the math. I think the margin story at the CES level is exactly the way you said it. Strong services growth here We're expecting $3.5 billion of services revenue growth in 2026, which drops through at a healthy clip. Despite you know, LEAP being a bigger share of that growth, we still expect strong drop through from our services revenue improvement year over year. And then the OE shipments are increasing. The spare engine ratio gradually comes down as we expect it to. You know, as time passes on. And then 9x shipments and with R&D coming in as well.

So I think those are the big drivers for the CES margins here in 2026. Now keep in mind that the margins ended up better than what we'd expected back when we gave the October guidance. You know, we the margins are about 70 basis points better than where we thought we were able to be in October. So we have a higher jumping off point. And despite that, you know, you see at the, you know, as you said, our margins are expected to be flattish here in 2026. So we feel good about the trajectory that we're on.

Operator: The next question comes from Seth Seifman with JPMorgan.

Seth Seifman: Hey, thanks very much, and good morning, everyone.

H. Lawrence Culp: Morning, Seth.

Seth Seifman: Maybe just to continue along that line of questioning, as we think about the headwinds that we know are accumulating from a mix perspective in CES and then we look out beyond 2026, how should we think about the margin trajectory there with LEAP OE becoming profitable, LEAP aftermarket continuing to become more profitable, but, you know, maybe OE aftermarket mix headwinds and more 9x. I guess, I'm getting to, like, a 26% in CES for 2026. And so kind of where do where do we think about that going directionally in the years beyond?

H. Lawrence Culp: Well, I think I think you captured some of the headwinds that we've talked about not only for '26, but for '28. You know, I think it's important to recognize that when we spun, we thought we would be at a $10 billion operating profit level two years from here. Right? So we're able to hit that milestone. We think we'll hit it at the midpoint here in 2026. So there's a lot of things that are clearly outweigh the headwinds as we continue to grow the install base.

And as we wrap with our suppliers, grow the installed base at a low to mid single digit level, and get the full benefit of utilization in term volume, work scopes, and price, the commercial services business really will be, pardon the expression, the engine that drives the profit growth.

You talked about how LEAP will be better for us as we go forward. We'll certainly be, we'll look to have the 9X do the same. And all the while, we don't want to forget about the progress that we made in defense. Right, where we were up 11% last year. Top line operating profit up over 20%. So I think we have plenty of opportunities to deliver on that $11.5 billion of operating profit that we've talked about for 2028. Potentially do better.

But that's that's really the plan to continue to serve the airlines, as best we can in the aftermarket ramp with the airframers, as they look to deliver to help the modernization and expansion programs from those same airlines. All the while supporting the warfighters to the fullest extent of our ability.

Rahul Ghai: And, Seth, if you just maybe add a couple of things here and if you go back to July when we gave our '28 guidance, we said we expect 21ish percent margins in 2028. Now we got there last year. So the jump off point is substantially better than where we've had back in July. We're jumping off that higher point. And even in '26, we are maintaining that margin profile. So I think we're getting to the margin outlook that we had laid out for '28. Again, Larry's point, not just on profit, but also on the margins. That's that's a good trajectory. And I think we spoke about the CFM 56 goodness here. Retirements are still trending low.

Shop visits in the 23 to 2,400 range. Now, which is maybe slightly better than what we thought back in July. And as you said, LEAP service profitability continues to get better. With the external channel. Larry mentioned the repairs that we are driving inside the company. We expect that number of repairs that are certified to continue to grow this year over '25. So that's helping. And with the incremental shop visits, we'll drive productivity in LEAP services as well. So all that points for LEAP services tailwind continuing here.

So I think those would be the big levers along with continued strong performance in the wide body program, especially GE 90, as we think about retirements pretty much nonexistent there. So all of that lends well to how we think about 2028. And, clearly, it's a better margin profile than what we thought back in July.

Operator: The next question comes from Ron Epstein with Bank of America.

Ron Epstein: Ron, are you there?

Ron Epstein: Hey. Can you hear me? Sorry about that.

H. Lawrence Culp: Yep. No. We got you.

Ron Epstein: Yeah. Good morning, guys.

H. Lawrence Culp: Good morning.

Ron Epstein: So yeah, a lot's been asked already, but just coming back to your prepared remarks. You mentioned that you guys are spending, what, $3 billion a year on R&D. That's a big number. Can you maybe, like, lack of better cliches, double click on that, maybe give us some feel for how you guys are spending that and what you're spending it on. Where those investments are being made.

H. Lawrence Culp: Yeah. Ron, I would say that in many respects is where you would anticipate it being. Right? Very much focused first and foremost on improving the customer experience with the engines that we are ramping. And you know, talk about LEAP in that regard. Want to make sure we continue to deliver improvements like the durability kit. And the like. To improve time on weighing and to reduce the total cost of ownership. We've got the 9x coming. Under wing with the triple seven x. So it's those newer programs that are either headed to EIS or that are ramping that are really the first order. All the while, we're making sure that we are investing in the future flight.

We've talked a lot with you in particular about our RISE program. It's a technology development, not a product development program, but nevertheless, garners a big chunk of that annual spend. And then, of course, on the defense side, there are a number of next-gen programs that represent another meaningful portion of our r and d spend. So you put that all together, coupled with the field experience we have on that 2.3 billion flight hour experience base, we think we're well-positioned to shape the future of flight. And as we move forward, we've talked a lot about the puts and the takes 26 on the road to 28.

Rest assured, we're gonna work very hard to protect and expand the size of the r&d envelope because we know this business has led through product cycles really on the back of innovation and technology. And that can't let that change into the thirties.

Operator: The next question comes from Gavin Parsons UBS.

Gavin Parsons: Thank you. Good morning.

Rahul Ghai: Good morning.

Gavin Parsons: You guys talked about CFM 56 retirements trending lower than you expected. I think it's 2% even though you're performing very well on LEAP deliveries. Curious if you're still expecting that to pick up to three or 4%. What's changed there? And if you still expect that shop visit to peak in '27? Thanks.

H. Lawrence Culp: Well, I think it's really Gavin, more than anything, a function of demand that the airlines are trying to satisfy. Right? Which has them keeping the CFM 56 powered planes in the air. And I think if we look at retirements in 2025, we ended up at about 1.5% of the fleet. It's relatively in line with what we saw in '24. I think on balance, '26 probably a little bit better for us. Likely, the 2% range compared to a two to 3% range we offered up in July. So at this point, from a shop visit perspective, we think we're gonna be in that 23 to 2,400 range through 2028.

And that's better than what we said in July where I think we were soft circling 2,300. So there'll be a gradual decline come 2030. But here in the next couple of years, given utilization, given demand, we think retirement's gonna be a little bit more muted. And the CFM 56 is gonna be stronger for longer. All good?

Operator: The next question comes from Noah Poponak with Goldman Sachs.

Noah Poponak: Hey. Good morning, everybody.

Rahul Ghai: Morning, Noah.

H. Lawrence Culp: Good morning, Noah.

Noah Poponak: Could you elaborate on the agreement that's been announced with AFTIA? What that means? What are the implications? And then, Rahul, on the free cash flow, you're now this year, you're going to flirt with what you had provided for 2028. You know, anything abnormally high in '26 that has to fade, or just how should we think about the bridge from '26 to '28 now?

H. Lawrence Culp: Yeah. Noah. I would say just on the agreement, as you all know, we have an open third-party aftermarket. We think that open network has really been a strength for us over time. We want to make sure that customers have as much optionality as possible in how they service their fleets that clearly in turn supports both asset values and lowers the cost of ownership. And that's really, I think, the foundation for what we've done.

Rahul Ghai: And, you know, I mean, it's on cash flow, Noah, nothing abnormal here in 2026. Our challenge last year was inventory growth. Right? I mean, we added about a billion dollars of inventory last year. And part of that is, we the supply chain is getting better, but it's not all there. So we get some parts, but everything. So that adds to inventory. And some of that is an investment that we are making to make sure that we can continue to increase output in 2026. As we think about '26, we're expecting less contract asset favorability and that is getting offset here with slower inventory growth.

So we added our total working capital in AD&A last year was about a half $1 billion net headwind. And this year, we expect slightly less than that. Which is not bad given the low double-digit revenue growth that we're expecting this year. So really nothing abnormal coming to our cash number here and more opportunity on inventory as we get out. And maybe slightly less on contract assets. Which is all in line with what we previously communicated.

Blaire Shoor: Liz, we have time for one last question.

Operator: This question comes from Gautam Khanna with TD Cowen.

Gautam Khanna: Hey. Thank you. Good morning.

H. Lawrence Culp: Good morning.

Gautam Khanna: And congrats to Muhammad and Russell. Just wanted to ask on customer behavior in the aftermarket. Have you seen any change? Do you anticipate seeing any change in terms of the scope of overhauls, either on wide-body engines or on CFM56? Any indication, any pricing pushback? I'm just curious, are you seeing any sort of discontinuity relative to what we've seen over the last couple of years.

H. Lawrence Culp: Nothing that really jumps out frankly. Again, the demand environment post-pandemic has been robust for the airlines. They need all they can possibly get from us. And that's why we've talked so much about flight deck and the supply chain over the last several years. Particularly as it pertains to supporting the fleet they have while making sure they're also able to expand and modernize. We talked a few minutes ago about the CFM 56 and all likelihood being more stable over the next few years. That clearly will creep into work scopes in certain instances with work scopes that will expand as the engines get older.

But I would say on balance, we were with a lot of customers just this past weekend. They want more, and they want it faster without any compromise respect to safety or quality. It's a fair ask and one that the team is committed to delivering on in the new year here.

Blaire Shoor: Larry, any final comments to wrap the call?

H. Lawrence Culp: Blair, thank you. The hour flew there.

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