GE sees aviation revenue boost from jet engines, aftermarket demand

By Rajesh Kumar Singh and Abhijith Ganapavaram

CINCINNATI, Ohio (Reuters) -General Electric Co forecast revenue at its cash-cow aviation business to grow by at least low-double digits through 2025 on strong demand for jet engines and aftermarket services, sending its shares more than 8% higher on Thursday.

Through this period, it also expects profit margins at GE Aerospace to be about 20%, company executives told investors at a conference in Ohio.

A jump in air travel has driven up sales at its aerospace division, which makes and services engines for Boeing Co and Airbus SE jets.

“The bottom line is that management are putting out pretty impressive targets for Aero through 2025, with the long-term framework for Vernova also above our base case,” Wolfe Research analyst Nigel Coe said, referring to GE energy businesses.

GE stuck to its profit expectations for 2023 despite the dim economic outlook and persistent supply shortages. It expects adjusted earnings per share of $1.60 to $2.00, with revenue growth in the high single digits.

Chief Executive Larry Culp said while GE is not recession-proof, it is enjoying an “incredible” order backlog and demand.

Recession is “the last thing on our mind,” he told investors. “Were well positioned to have a strong year.”

The company expects the aerospace business to generate double-digit revenue growth this year, translating into an operating profit of $5.3 billion-$5.7 billion.

Fueled partly by later jet retirements as planemakers struggle to raise production, GE also held out the prospect that lucrative repair revenues from the CFM56 engine that powered the previous generation of Boeing and Airbus narrow-body jets would continue for years to come. Nearly half of the industrys most-sold jet engines have not seen the first shop visit, GE said.

GE said it was “aligned” with Boeing and Airbus on demand for LEAP jet engines through 2024, adding that 2025 supplies were being discussed as part of a standard process.

Engines supplied by CFM International, GE‘s joint venture with France’s Safran SA, power Boeing‘s 737 MAX jets and about half of Airbus’ A320/321neo family.

The comments imply a commitment to support Airbus plans to lift narrow-body output to 65 jets a month from 45, but leave question marks over the planemakers further push to take it to 75 a month.

Airbus has said it is confident that demand for jets would support the higher production rate but has given itself another year to get there, compared with earlier proposals, due to supply chain pressures.

Under a revised plan announced last month, Airbus aims to reach production of 65 a month by the end of 2024 and to hit 75 a month in 2026.

However, supply and labor shortages have hurt jet engine output, with CEO Culp saying it was a daily battle to meet jet engine demand.

Meanwhile, GE Vernova, the companys portfolio of energy businesses, including renewables, is expected to report an operating loss of between $200 million and $600 million in 2023.

Its troubled renewable energy business is expected to be profitable in 2024, GE said as the unit has failed to turn a profit in the past eight quarters due to weak demand, higher raw materials and labor costs as well as supply-chain pressures.

These troubles have cast a shadow over GEs spin-off timeline for Vernova, but Culp said energy businesses are “preparing to stand on their own sometime in early 2024.”

The companys shares hit their highest since May 2018 on Thursday.

(Reporting by Rajesh Kumar Singh in CINCINNATI, Ohio., Abhijith Ganapavaram in Bengaluru; Additional reporting by Tim Hepher in Paris; Editing by Jane Merriman, Arun Koyyur and Nick Zieminski)