By Chris Sloan<\/strong><\/p>\n GE Aerospace First Quarter 2025 earnings report.<\/strong><\/p>\n<\/div>\n April 22, 2025 \u00a9 Leeham News:\u00a0 <\/strong>GE Aerospace\u2019s above consensus beat for Q1 2025 earnings was overshadowed by the administration\u2019s fluid reciprocal tariffs policy in its first earnings call.<\/p>\n \u201cWe support promoting free and fair trade that ensures the continued strength of the U.S. aerospace industry. As the U.S. administration engages in discussions with its trade partners, we\u2019ll continue to advocate for an approach that reestablishes zero-for-zero tariffs in the aviation sector and ensures a level playing field for the U.S. aerospace industry,\u201d said Larry Culp\u00a0 GE Aerospace CEO. \u201cIt\u2019s easy to overlook the $75bn trade surplus the sector enjoys largely on the back of this terra-free regime that we\u2019ve had since 1979,\u201d adding that he has been in direct communication with senior people within the administration, including the president.<\/p>\n The propulsion maker is girding itself for a significant financial hit if the tariffs stick. Culp says the company is mitigating the additional projected costs of $1.5bn to roughly $500m by leveraging available programs the administration is providing, such as duty drawbacks, along with other strategies to optimize its operations, like expanding foreign trade zones. GE says it will lean into a temporary surcharge for recovering tariff-associated costs, a plan almost sure to have its customers scrutinize their contracts. Price increases will be handled separately. \u201cOur thinking around that has not changed. We are still aiming for high single-digit price increases on our spare parts later this summer, consistent with where we were in January,\u201d said CFO Rahul Ghai.<\/p>\n The upstream effect from its suppliers, living in a still-fragile supply chain, is not going unaddressed. \u201cThere\u2019s a tremendous amount of work going on with the new tech and ops organization to strengthen our overall working relationship with the supply base, large and small,\u201d said Culp, signaling that the burden for absorbing tariff-driven increases will fall on companies with \u201cfirm fixed\u201d contracts.<\/p>\n The door is left open for flexibility in overall OE\/supplier arrangements not to disrupt the push to build up component inventory from the supply base. GE boasts that its year-old Flight Deck initiative is paying dividends, with priority suppliers continuing to improve shipments against their committed targets. Specifically, in the first quarter, they delivered, shipping more than 95% of their committed volumes.<\/p>\n GE\u2019s LEAP partner, SAFRAN, was named as a carve-out for handling its tariffs without going into detail.<\/p>\n Even as the Chinese government suspends Boeing deliveries, GE still forecasts demand for services and engines in the country.\u00a0 \u201cGiven the tariffs in place, we\u2019ve reduced spare parts and spare engine sales for the year to that region. Some of them will get diverted to other customers, but will probably still have an impact. China\u2019s curtailment of rare-earth metals \u201cisn\u2019t high on the company\u2019s current worry list. We\u2019ve embedded a certain amount of conservatism in our guide about the issues arising from the tariffs in China,\u201d Ghai emphasized.<\/p>\n Recession concerns are growing daily, particularly in North America, but GE\u2019s CFO remains ever-buoyant even if departures slip, owing to the constrained environment. \u201cOverall, we are holding the double-digit spare parts growth for the year, just given the (strong) start that we had. As we sit here today, we feel better about the year, even with the tariffs, even with the macroeconomic uncertainty, than we did back in January.\u201d Longer-term, the company isn\u2019t immune to impacts felt two to four quarters out.<\/p>\n Analysts took heart that GE is holding its low double-digit revenue growth, with a profit of $7.8bn to $8.2bn.\u00a0 \u201cWhile the broader environment is certainly uncertain, we are watching demand closely and we\u2019re operating from a position of strength with our robust backlog positioning,\u201d said Culp. Nonetheless, he cautions the company is readying for a downdraft. \u201cWe are preparing for tariffs that could persist through year-end, with 10% tariffs remaining in place and then reciprocal tariffs resuming after the 90-day paus<\/span>e. None of us knows for sure how this plays out.\u201d<\/p>\n \u201cGE is the first of the aerospace companies to incorporate the potential impact of the trade war, and we think it encouraging that despite the tariffs and a lower RPM projection, it has held the 2025 guidance. Of course this is a forecast not a guarantee, and this situation could still change \u2013 as GE notes, it has not factored in a recession in its guidance,\u201d said Vertical Research Partners Analyst Robert Stallard.<\/p>\n The LEAP program continues to show strong momentum, with the fleet projected to more than double by the decade\u2019s end. To meet rising aftermarket demand, CFM is expanding its capacity, which is highlighted by a more than 60% increase in external shop visits during the first quarter. All current engine shipments to Airbus now include the full durability kit, featuring the upgraded high-pressure turbine (HPT) blade approved in December. This enhancement enables the LEAP-1A to reach time-on-wing performance comparable to the CFM56. In parallel, the upgraded HPT blades are being supplied to MRO facilities for retrofit into the existing fleet. The new blade design simplifies manufacturing, boosts process efficiency, and reduces capacity requirements\u2014all factors that will help support the anticipated 15\u201320% growth in LEAP deliveries in 2025. Early indicators through April suggest output is already improving, with CFM expressing confidence in its ability to further accelerate production into 2025 and beyond.<\/p>\n LEAP engine shipments, however, declined by 13% from the previous quarter to just 319 units. The lower-than-expected deliveries were attributed to sluggish material flow early in the quarter, particularly in January. However, the company reported significant improvement in material input throughout February and March, bolstering confidence in a stronger output trajectory for the second quarter.<\/p>\n Over recent quarters, continued strength in order volumes has pushed the commercial services backlog to more than $140 billion. However, the company faces headwinds in converting those orders into revenue, citing spare parts availability as a key culprit. \u201cOur spare parts delinquency continues to increase, unfortunately, up over two times year-over-year, and our internal shop visit slots are full with a healthy pipeline of engines which have been removed but not yet inducted into our shops,\u201d Culp admitted.<\/p>\n![\"\"](\"https:\/\/leehamnews.com\/wp-content\/uploads\/2024\/07\/GE-Aerospace.png\")
<\/a><\/p>\nPreparing for financial hit over tariffs<\/strong><\/h5>\n
<\/a><\/p>\nThe R Word and China Enters The Chat<\/strong><\/h5>\n
<\/a><\/p>\nLEAP\u00a0 Sees Surge in Growth and Upgrades While Deliveries Slip<\/strong><\/h5>\n
Commercial Services Backlog Tops $140 Billion Amid Spares Shortages<\/strong><\/h5>\n