By Chris Sloan
October 27, 2024, © Leeham News: GE completed its second quarter as a pure play aerospace play, announcing Q3 2024 earnings with positive revenue, profit, sales growth, and services coupled with headwinds from overall reduced engine deliveries of 4%, impacts to the GE-9X program from the Boeing 777-X’s latest delays, and the all too familiar supply chain constraints. Growth in services and pricing power provided a boost.
“Our recent wins and wide bodies and narrow bodies built on our considerable backlog of $149bn,” said GE Aerospace Chairman and CEO Larry Culp. Recent commercial campaign wins include narrowbody orders from lessor Avolon, which ordered 150 LEAP-1A engines to power 75 A320/321neos and announced widebody commitments from EVA Air for four GEnx-powered 787s and Qatar’s order for 40 GE9X engines to power 20 777s. The propulsion provider, however, is guiding towards a 10% decline in commercial engine deliveries year-on-year. Markets punished GE with an 8.5% drop in its stock price by mid-morning trading.
LEAP deliveries declined by 6% year-on-year with 356 units in the quarter, driven by supplier issues and OEMs.
“We had expected the guide to be decreased, but this was even lower than our recently revised forecast of -4%,” said a Bernstein Analyst report. Culp admits that “On the handful of critical suppliers, it paced us a bit, but I really like not only the underlying collaboration but the on-site problem-solving that we’re doing; we’re unlocking capacity. As a result, and that helps us deliver more to all of our customers. That’s what we’re also geared up to do here in the fourth quarter. I think we’re poised to deliver good growth going into 2025.”
GE credited progress delivered by its FLIGHT DECK program to unlock supply chain constraints, increase material inputs, and drive sustainable improvements at its top 15 supplier sites, with over 550 engineers dispatched across multiple sites – reporting output rates up by 18%. Overcoming the supply chain challenges is vital to meeting Airbus’ intent to ramp the A320neo family to rate 75 and Boeing resuming MAX production on the “other side of the work stoppage.”
Ghai asserts compensation “has not been a material number for us in 2024. The deliveries are sequentially better in the third quarter, will get better in the fourth quarter, and will continue to improve as we work past these supply chain challenges, but nothing major in on the liquidity damages or penalty side on either side on either commercial or military.”
The company continues to tackle the LEAP’s less-than-stellar time-on-wing durability, which has struggled particularly in more hostile environments. GE is touting improvements from the new High Power Turbine (HPT) blade that will soon be certified. Culp called it “A Two-Fer,” citing its easier-to-build and enhanced field performance with a step change in time-on-wing durability of up 2.5X over earlier LEAPs. The Chief Executive forecast that the LEAP will reach its predecessor CFM-56 durability levels by 2025. He cautioned, however, that the HPT is not a silver bullet in upping production rates and that 2024 deliveries will be assembled using the current blade technology. GE reported progress on its Flight Deck program.
Boeing’s announced 777-X first deliveries pushed out to 2026 will create headwinds for the 9X program in 2025, and for the next few years. The company is still delivering units to Boeing which will continue for the remaining two months of the fourth quarter. “For 2025, we’re working with Boeing with exactly how many engines will they need based on their demand profile,” remarked CFO Rahul Ghai.
Production financial losses will mount, before turning positive. “It will grow for a period of time beyond that because as engine deliveries ramp, that specific headwind will grow until we start getting the costs out. We expect about 30% of the cost to come out by the 50th engine and an additional 30% as we get to the 250th engine. So that’s what’s in our plan and we’ll move past the peak losses and the program should be profitable by 2030. said Ghai.
Culp maintained that from an operational perspective, there is really no change at GE. “Test the engine and prepare for a production ramp going forward. I think it’s really that simple. We’re excited about that engine. We know that the aircraft is late but every customer that I talked to loves the airplane. It’s really at this point a matter of time.”
777-X and LEAP delays are providing a tailwind for the services side of the house–particularly for previous-generation propulsion. “CFM-56 and GE90 are kind of holding their share of departures with extremely low levels of retirement. CFM-56 retirement this year have been lower than even where they were in 2023,” Ghai said. The GE-90 is also getting in on the act. “Keep in mind that 75% of that fleet has not seen the second shot for this (overhaul). What helped our revenue here in 2024 will continue to grow over time,” Culp discloses. GE-9X shop visits are roughly on a volume basis are projected to be flat over the next three to four years. The engine builder boasts the reason for that is even as their installed base is growing, but their time on wing is doing a lot better than would be initially expected. This is in contrast to the the Rolls-Royce Trent and next generation narrow-body programs like the LEAP and Pratt’s GTF.
The company reported LEAP internal shop visits jumped more than 20% year-over-year, while it continued to expand capacity to support aftermarket growth by adding a dedicated LEAP MRO shop in Poland to its internal network. Higher amounts of spare parts, larger work scope packages, and price increases generated a boost. “The expectation of CFM56 peak shop visit over 2025-27 benefits Safran,” said the Bernstein analysis.
Buoyancy aside Culp knows there’s more work ahead, “We know we have customers, airlines and airframers want more from us. And that’s job one.”
For the third quarter of 2024, GE orders increased 28% YOY on $12.6bn. Operating profit of $1.8bn notched a 14% increase on a 6% increase in revenue of 6%. With three quarters in the books, the engine-marker is upping its full-year guidance to $6.7-$6.9bn in operating profit, an increase of 17.4% over 2023, with commercial propulsion driving the lion’s share.
In contrast to GE’s spin, investors were disappointed. “Commercial Engines & Services (CES) services revenue, the closely watched aftermarket metric, grew 9.6% y/y in Q3, and at 11.6% y/y YTD, puts the company behind the mid-teens full-year target,” said Bernstein.
Today’s results notwithstanding, The new standalone continues to be an investor favorite in the aerospace standout with its stock increasing by nearly 78% YTD. GE divulged it returned $4.4bn to shareholders year-to-date, including in 3Q repurchasing 7.9m common shares for $1.3bn under the company’s $15 billion share repurchase program announced in March 2024 just before it spun off GE Vernova in April.
I wonder if the 777-X will actually enter service in 2026.
It’s interesting Ortberg only said “2026”
That could be anywhere from 15-26 months. Not exactly a definite answer
@Vincent:
Like the union vote tomorrow, wait and see.
He said, she said, they said and what matters is what happens not what is speculated.
“Their time on wing is doing a lot better than would initially be expected “!?
What am I not understanding? would expect GE9X to stay on the wing indefinitely on aircraft that haven’t even flown.That’s if they are even lucky enough to have been produced and mounted in the first place.
What have they been doing with the spare production capacity?
Spare production capacity is not obvious.
First production is nothing more than a space to build the engine.
However, the tools to assemble it are specific to the engine. Overhead hoists would be rated to the weight, so with the right riging you can use for something else.
If you want to use that space, you have to get tooling for LEAP and then it has to be a specific LEAP and your technicians have to be re-trained on assembling LEAP.
Shift to LEAP-B? Ooops, we don’t need any more of those.
Shift to LEAP-A? Well Airbus is not ramping up as fast so…………………. And you need the assembly tools and how long does that take?
Maybe use the techs as vacation fillers and sudden sick calls (but have to be trained)
Or move to Overhauling GTF engines! There is some work there for a few years.
GE has to be careful not overusing its dominant position to overprice services and spare parts. The 777X sounds to be a better Freighter than competing with the lighter A350-1000 for hauling pax (self loading cargo) unless RR messes up again.