GE Aerospace (GE) Q4 2025 Earnings Call Transcript

GE Aerospace (NYSE: GE) Q4 2025 Earnings Call dated Jan. 22, 2026

Corporate Participants:

Blaire Shoor — Head of Investor Relations

H. Lawrence Culp, Jr. — Chairman and Chief Executive Officer

Rahul Ghai — Senior Vice President and Chief Financial Officer

Analysts:

John Godyn — Analyst

Myles Walton — Analyst

Douglas Harned — Analyst

Scott Deuschle — Analyst

Sheila Kahyaoglu — Analyst

Seth Seifman — Analyst

Ronald Epstein — Analyst

Gavin Parsons — Analyst

Noah Poponak — Analyst

Gautam Khanna — Analyst

Presentation:

operator

Good day ladies and gentlemen and welcome to the GE Aerospace fourth quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. My name is Liz and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I’d now like to turn the program over to your host for today’s conference, Blair Schor from the GE Aerospace Investor Relations Team. Please proceed.

Blaire Shoor — Head of Investor Relations

Thanks, Liz. Welcome to GE Aerospace’s fourth quarter and full year 2025 earnings call. I’m joined by Chairman and CEO Larry Culp and CFO Rahul Guy. Many of the statements we’re making are forward looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and website, those elements may change as the world changes. Additionally, Larry and Rahul, consistent with prior quarters, will speak to total company and corporate financial results and guidance on a non GAAP basis. Now over to Larry.

H. Lawrence Culp, Jr. — Chairman and Chief Executive Officer

Larry, thanks and good morning everyone. I’d like to begin with our purpose. We invent the future of flight, lift people up and bring them home safely. Right now, nearly 1 million people are in flight. With our technology under wing connecting people and goods worldwide. We play a vital role empowering the war fighters who defend freedom. And while we work to deliver for our customers today, we’re 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, but also how we got there with our culture of respect for people, being customer driven and continuous improvement.

Turning to our Results on slide 4, 2025 was an outstanding year for GE Aerospace as 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 debt, 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 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’re 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 $0.85 billion to $10.25 billion, up a billion dollars at the midpoint. This translates the EPS of $7.1 to $7.4, up nearly 15% at the midpoint. And we expect to generate 8 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 at spin. 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 Flightdeck, we’ll unlock greater value for our customers and shareholders turning to Slide 6 in their first year, our technology and operations or T and 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 T and O, now led by Muhammad Ali. Integrating our product line, engineering and supply chain teams will improve our end to end engine lifecycle management. We’re 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’ll retire from GE Aerospace in July after 29 years of service. His continuous improvement mindset and passion for developing leaders help build this world class business. Russell was one of the first leaders I met here at GE and he’s 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 26 across our MRO network.

We are removing waste to improve shop visit output and turnaround times. For example, we’re converting from batch to flow production which supported Leap CFM56 and GE90 turnaround times improving over 10% year over year in the fourth quarter. Additionally, at our Wales facility CFM56 turnaround time improved by 20% and at Selma we sustained turnaround times below 80 days. This enabled us to deliver our highest LEAP shop visit output of the year, with 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 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 1800 units, a record Output for the program and defense engine deliveries increased 30% while 2025 marked a year of progress. We know there’s more to do to meet customer demand and I’m confident we’ll deliver. Turning to slide 7 one of the behaviors that guides us is to be customer driven in all that we do we’re leveraging over 2.3 billion flight hours and nearly $3 billion in annual R and D to drive meaningful improvements for our customers. Our focus remains on delivering mature levels of time on wing and lowering costs of ownership.

In November, the GenX fleet leader, equipped with the upgraded HPT blade, which has improved time on wing over two and a half times in hot and harsh environments, achieved a new milestone surpassing 4000 cycles. Informed by our progress with the GenX, the Leap One A durability kit will improve time on wing by more than two times, matching our industry leading CFM56 performance. This is now incorporated in all Leap One A new engine deliveries and shop visits, with nearly 1500 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. CFM56 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, and we continue to strengthen MRO access to OEM materials to support further CFM56 longevity. Last quarter, for example, we reached a materials agreement with FTAI Aviation to support service of its growing fleet of CFM56 engines.

We’re 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’re 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 One A engines and Fly Dubai’s selection of 60 Gen X engines. Additionally, Pegasus Airlines committed up to 300 Leap One B engines to power its future Boeing 73710 fleet.

And we’re honored that Delta, a new GenX customer, selected us to power and service their new fleet of 30 Boeing 787s. In defense industry, 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 — Senior Vice President and Chief Financial Officer

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 ratio. Oe growth including 9x shipments and investments. Margins as the 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 that 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 part 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 timing of back end loaded spare engine deliveries in 2024.

For the year, Spirit 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 and 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 2. Revenue grew 13%. Defense and systems revenue was up 2%. Defense units were down 7% due to a difficult compare 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 and price. That was 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 booked to bill 1.5 with backlog now at $21 billion, up nearly $3 billion. Improved output supported 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 CESAR and DPT partially offset by higher corporate cost 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 add interest expense accounted for for an additional 46 cents of EPS growth. Tax rate was down 3 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. Aeroderivative 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 hundred million dollars 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 resegmentation 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 recasted 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 widebody programs. We expect 9.6 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 9x, a lower spare engine ratio and continued investments in DPT.

We expect mid to high single digit revenue growth and profit of 1.55 to $1.65 billion. Higher deliveries will be partially offset by inflation mix investments, Corporate costs and eliminations are up year over year to 1.2 to $1.3 billion from lower interest income AI investments and higher eliminations from internal PAT growth. In total, we expect low double digit revenue growth for the company with profit in the range of 9.85 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 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 to $8.4 billion of free cash flow primarily from higher earnings. Working Capital and ADNA 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, Jr. — Chairman and Chief Executive Officer

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, 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 and D investments allows us to drive continuous improvement across our services and products, enhancing time on wing and lower cost of ownership As a result, across our narrow body, widebody, regional and defense platforms, we offer the best performing products under wing.

Our world class engineering teams developed 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 before we.

Questions and Answers:

operator

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? Ladies and gentlemen, if you wish to ask a question, please press star 11 on your telephone. If you wish to withdraw your question or your question has already been answered, please press star 11 again. Our first question comes from John Godden with Citigroup. Your line is now open.

John Godyn

Hey, thanks for taking my question. 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 last 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 teens services growth guidance for 2026, is there any room there to outperform if recent momentum continues? Thank you.

H. Lawrence Culp, Jr.

Well John, good morning. Thanks for getting us started. 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’ve all seen Delta United out in the last week, for example, I think talking confidently about 2026. So when you couple the their outlook, the fact that we come into the year with 190 billion of backlog, we know our share of cycles with leap in particular the narrowbody segment being up and the opportunities to leverage that underlying unit volume in the aftermarket with both Expanded work scopes 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 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 internal 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 priority 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

Just a couple of things. John, welcome to our call here. 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 narrowbody and that’s coming as our 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 2 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.

We 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 adds to that 15% growth that we mentioned on shop. So overall feel good about the services outlook for 26.

operator

The next question comes from Miles Walton with Wolff Research. Your line is now open.

Myles Walton

Thanks. Good morning. I was wondering, on the leap break even or leap profitability on the original equipment side, are we crossing the root counter profit or break even 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 the manufacturers want their production rates?

H. Lawrence Culp, Jr.

Well, Miles, from a newmake perspective, and as you know as well as anyone, the supply chain that supports the newmake also supports 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 airframe is 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 LEAP profitability, yes, we expect Leap OE to be profitable in 2026 as per our PR.

operator

The next question comes from Douglas Harnett with Bernstein. Your line is now open.

Douglas Harned

Good morning. Thank you.

H. Lawrence Culp, Jr.

Good morning. Doug.

Douglas Harned

You talked about the improvement in turnaround times across the board, like Leap, DSM 56, GE90 by about 10%. And Leap I, I can see that. But CFM 56, GE90, very mature engines. Is this turnaround time improvement? Is that both for internal and third party shop visits? 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 DFM56 is largely time and materials in GE90, you’d be on CSAs, I would assume.

H. Lawrence Culp, Jr.

Doug. It is an internally oriented number. Right. We watch tat turn around time closely at every one of our shops, across platforms, across the network. The way I think about tat improvement, it’s really driven by two things. One, material availability and to 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 to bring bring down turnaround times.

We talk about 40% year over year improvement from our priority suppliers. We talk about those suppliers delivering it 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 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 considerable productivity unlock. If a team on the floor has to stop a shop visit. If they are idle waiting for a a part delivery, that’s obviously unproductive time. If they have everything they need from induction to certification, we will see and I think have seen the early signs of real productivity bumps there as well.

operator

The next question comes from Scott Deutschle with Deutsche Bank.

Scott Deuschle

Hey, good morning, Rahul. Can you Quantify what the GE9X headwind ended up being in 2025 and what the incremental profit headwind is from 9x in 20? And if you could comment on the quarterly earnings cadence you’re expecting 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

Yeah. So Scott, on 9x our losses ended. I mean we set a couple of hundred million bucks 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. And 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, you put all that together at 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 the segments. And now getting into the CES MAT services, you know, we ended 25 with 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 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 will drive revenue growth. But if you, you know, first quarter last year was our strongest sphere engine shipment quarter. So there’ll be some impact from that here as we think about 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 25. And then DPD, 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. Now as we switch to profit, expect that profit to be up year over year. Growth up year over year, 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, marginally better here versus where we ended fourth quarter of 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 Khayalu with Jeffries.

Sheila Kahyaoglu

Good morning, Larry. Raul, maybe. Raul, since you were just speaking about CES profit guidance for 26, you know, if you could walk us through margins at the midpoint, it implies margins are flat. I know you gave a few pieces the G9X 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 expecting $3.5 billion of services revenue growth in 2026, which drops through at a healthy clip. Despite 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 as time passes on, and then 9x shipments and with R and 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. The margins were about 70 basis points better than where we thought they will be in October. So we have a higher jumping off point. And despite that, you see, as you said, our margins are expected to be flat here in 2026. So we feel good about the trajectory that we are on.

operator

The next question comes from Seth Seifman with JP Morgan.

Seth Seifman

Hey, thanks very much and good morning, everyone. 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 maybe OE aftermarket mix headwinds and more 9x. I’m getting to a 26.6 in CES for 2026. And so where do we think about that going directionally in the years beyond?

H. Lawrence Culp, Jr.

Well, I think you captured some of the headwinds that we’ve talked about not only for 26, but for 28. 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. So we were 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 have clearly outweigh the headwinds as we continue to grow the installed base and as we ramp with our suppliers, grow that installed base at a low to mid single digit level and get the full benefit of utilization in turn, 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 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 opportunity to deliver on that $11.5 billion of operating profit that we’ve talked about for 2028. Potentially do better. But that’s really the plan.

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 war fighters to the fullest extent of our ability.

Rahul Ghai

And so just maybe add a couple of things here. 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 thought back in, back in July. So we’re jumping off that higher point. And as we even 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, not just on profit but also on the margins. So 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 2400 range now, which is maybe slightly better than what we thought back in, back in July. And as you said, you know, LEAP service profitability continues to get better with the external channel. Larry mentioned the repairs that we are driving inside the, inside the company. We expect the number of repairs that are certified to continue to grow this year over 25. So that’s helping. And with the incremental shopper, this will drive productivity in the, in the LEAP services as well.

So all that points to the LEAP services tailwind kind of Continuing here. So I think those would be the big levers along with continued strong performance on the widebody program, especially G90 as we think about the retirements are pretty much non existent 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.

operator

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

H. Lawrence Culp, Jr.

Ron, are you there? Ron?

Ronald Epstein

Hey, can you hear me? Sorry about that.

H. Lawrence Culp, Jr.

Yep.

Ronald Epstein

Yeah, good morning guys. 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 and D? That’s a big number. Can you maybe, for 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, Jr.

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 talk about LEAP in that regard. We want to make sure we continue to deliver improvements like the durability kit and the like to improve time on wing and to reduce the total cost of ownership. We’ve got the 9X coming under wing with the 777X. 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 of 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, all we’ve talked a lot about the puts and the takes of 26 on the road to 28. Rest assured we’re going to work very hard to protect and expand the size of the R and D envelope because we know this business is led through product cycles really on the back of innovation and technology and that will. We can’t let that change into the 2000 and 30s.

operator

The next question comes from Gavin Parsons with ubs.

Gavin Parsons

Thank you. Good morning.

H. Lawrence Culp, Jr.

Good morning.

Gavin Parsons

You guys talked about CFF 56 retirements trending lower than you expected, I think at 2%, even though you’re performing very well on leap deliveries. So curious if you’re still expecting that to pick up to 3 or 4%, what’s changed there and if you still expect that shop Visit peak in 27. Thanks.

H. Lawrence Culp, Jr.

Well, I think it’s really more than anything a function of demand that the airlines are trying to satisfy, which has them keeping the CFM56 powered planes in the air. I think as we look at retirements in 2025, we ended up at about 1.5% of the fleet, relatively in line with what we saw in 24. I think on balance, 26 probably a little bit better for us, likely in the 2% range compared to a 2 to 3% range we offered up in July. So at this point, from a shop visit perspective, we think we’re going to be in that 23 to 2,400 range through 2028.

And that’s, it’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 is going to be a little bit more muted and the CFM56 is going to be stronger for longer. All good.

operator

The next question comes from Noah Popenak with Goldman Sachs.

Noah Poponak

Hey, good morning, everybody.

H. Lawrence Culp, Jr.

Good morning. Noah.

Noah Poponak

Could you elaborate on the agreement that’s been announced with fti, what that means? What are the implications? And then, Raul, on the free cash flow you’re now this year you’re going to flirt with what you had provided for 2028. 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, Jr.

No, I would say just on the agreement, as you well 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 cost of ownership. And that’s really, I think, the foundation for what we’ve done.

Rahul Ghai

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

So we added our total working capital in ADNA last year was about $0.5 billion of net headwind and this year we expect slightly less than that, which is not bad given low double digit revenue growth that we’re expecting this year. So really nothing abnormal coming through 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.

H. Lawrence Culp, Jr.

Liz, we have time for one last question.

operator

This question comes from Gautam Khanna with TD Cowan.

Gautam Khanna

Hey, thank you. Good morning. Good morning and congrats to Mohammad 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 scope of overhauls either on wide body engines or on CFM56? Any, 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, Jr.

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 CFM56 in all likelihood being more stable over the next few years. That clearly will creep into work scopes in certain instances, 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 with respect to safety or quality. It’s a fair ask and one 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, Jr.

Blair, thank you. The hour flew there. Now I would just say to close, GE Aerospace remains a differentiated franchise defined by our enviable market position and flight deck supporting enhanced performance as we look ahead. Our outlook reflects confidence in our ability to deliver consistent value for our customers, shareholders and the millions of people who rely on our services and products every day. We appreciate your time today and your interest in GE Aerospace.

operator

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect. Sa. Sa. Sa.