GE Aerospace (GE) Q2 2025: Services Revenue Surges 29% as Backlog Hits $175B, Upgrading 2028 Profit Target
GE Aerospace’s Q2 marked an inflection in services-driven profit and cash flow, propelled by a 29% jump in services revenue, robust order momentum, and operational improvements that are resetting the long-term outlook. Management’s confidence in the durability of the commercial engine aftermarket, coupled with a record $175 billion backlog, led to a substantial raise in profit and free cash flow targets for 2028. Investors should focus on the sustainability of aftermarket demand, supply chain normalization, and the margin trajectory as new platforms scale.
Summary
- Aftermarket Momentum: Services revenue acceleration and backlog expansion underpin upgraded long-term profit guidance.
- Operational Leverage: Supply chain stability and process improvements are driving higher output and margin expansion.
- Capital Return Commitment: Management boosts shareholder return plans, signaling sustained confidence in cash generation.
Performance Analysis
GE Aerospace delivered a high-velocity quarter, with total company revenue climbing 23% and profit up 23%, driven by a sharp rebound in Commercial Engines and Services (CES) and steady Defense and Propulsion Technologies (DPT) growth. CES, which anchors the business model with over 70% of revenue from recurring services, saw orders for services and equipment rise 28% and 26%, respectively, while service revenue jumped 29% on higher shop visit volume and spare parts pricing. Equipment revenue also posted robust 35% growth, reflecting both new engine demand and a normalization of spare engine mix.
DPT posted 7% revenue growth, with defense and systems up 6% and propulsion and additive technologies up 9%, though margin compression of 20 basis points to 14.1% highlights ongoing investment and inflationary headwinds. Free cash flow nearly doubled to $2.1 billion, reflecting strong profit conversion. Notably, total engine deliveries rose 45%, with commercial up 37% and defense up 84%, a testament to both supply chain normalization and demand strength.
- Services Volume Surge: Internal shop visit revenue grew over 20%, with CFM56 and LEAP platforms driving aftermarket expansion.
- Margin Expansion: CES margins widened by 50 basis points to 27.9%, powered by services mix and pricing discipline.
- Backlog Visibility: Commercial services backlog now exceeds $140 billion, supporting multi-year growth visibility.
Overall, the quarter’s results validate GE Aerospace’s recurring revenue model—anchored by a large, aging engine fleet and robust services demand—while operational gains and pricing actions offset inflation and new product ramp costs.
Executive Commentary
"Our robust orders over the last several quarters have increased our commercial services backlog to now over $140 billion, supporting growth for years to come. Across the commercial sector specifically, we see strong fundamentals. Air traffic growth is expected to outpace global GDP, especially in Asia-Pac and the Middle East. And new aircraft builds and airline expansions remain healthy, supporting the growth of our install base."
Larry Kolk, Chairman and CEO
"Given the strength of our first half results and our expectations for remainder of the year, we are raising our 2025 guidance across the board. We now expect total revenue growth of mid-teens, up from low double digits. For total operating profit, we now expect to be in a range of $8.2 to $8.5 billion, up $350 million at the midpoint, versus our April guide, from improved services outlook."
Rahul Guai, CFO
Strategic Positioning
1. Services-Led Model with Installed Base Leverage
GE Aerospace’s core business model is built around its massive installed base of over 49,000 commercial engines and 29,000 defense engines, with 70% of total revenue from high-margin, recurring services. The aging of foundational fleets like CFM56 and GE90 is extending shop visit cycles and increasing work scope, while the LEAP and GENX platforms are scaling rapidly, promising sustained aftermarket growth. Management projects narrowbody revenue to grow at a low double-digit CAGR, with widebody services revenue at a high single-digit rate through 2030.
2. Operational Execution and Supply Chain Stabilization
Flight Deck, GE’s proprietary lean operating model, is driving material improvements in output, turnaround time, and supplier reliability. Priority supplier sites delivered 95% of committed volume, up nearly two-fold in a year, and MRO shop lead times for critical modules like CFM56 have dropped by over 30%. AI-enabled inspection tools are halving inspection times and boosting accuracy, while investments in MRO capacity and partnerships (e.g., ZEOS in Poland) are expected to expand capacity by 40% by 2030.
3. Technology and Product Innovation
GE is doubling down on both current and next-gen propulsion technologies. The LEAP durability kit is now standard, and retrofits will phase in over years as engines come in for shop visits. The GE9X program is entering service as the most tested engine in company history, while the CFM RISE open fan architecture is positioned as a “game changer” for fuel efficiency and durability. In defense, adaptive cycle engines and international partnerships (e.g., Avio Aero for European defense) are positioning GE for future military modernization programs.
4. Capital Allocation and Shareholder Returns
Management raised its commitment to return $24 billion to shareholders by 2026, up 20% from prior plans, with $19 billion in buybacks and $5 billion in dividends. The company expects to return at least 70% of free cash flow annually beyond 2026, reflecting confidence in cash generation and long-cycle aftermarket demand.
5. Pricing Power and Inflation Management
GE is navigating persistent supply chain inflation with disciplined pricing actions—mid-single-digit gross price increases in services are expected to more than offset cost pressures. New service contracts are being repriced as platforms mature, and repair technology investments are reducing shop visit costs, supporting margin sustainability as LEAP and GENX scale.
Key Considerations
This quarter’s results reinforce the strategic shift to a services-driven, high-visibility cash flow model, but investors should scrutinize several evolving dynamics:
Key Considerations:
- Aftermarket Demand Durability: The longevity of the CFM56 and GE90 fleets is driving higher-than-expected shop visits, but eventual retirement rates (projected to normalize at 3-4%) will be a key watchpoint post-2028.
- LEAP Profitability Ramp: Management targets LEAP service margins to approach overall service margins by 2030, relying on scale, repair mix, and pricing. Execution risk remains as the program matures and external MRO participation expands.
- Supply Chain Normalization: While supplier reliability has improved, management stresses that supply chain tightness and inflation will persist, requiring continued operational vigilance and collaboration.
- New Product Ramp Costs: GE9X initial losses will weigh on margins through late decade, though cost reduction initiatives are underway to improve economics as volume grows.
- Capital Allocation Discipline: The increased commitment to shareholder returns signals confidence, but also raises the bar for sustained free cash flow conversion and investment in innovation.
Risks
Key risks include supply chain disruption, persistent inflation in materials and labor, and the timing of fleet retirements, which could impact shop visit volume and aftermarket revenue. New platform ramp costs, especially for GE9X and RISE, present margin headwinds if cost-out targets are missed. Geopolitical uncertainty could affect defense budgets and international program participation, while any safety or quality incidents would have outsized reputational and financial impact given the scale of GE’s installed base.
Forward Outlook
For Q3 and the full-year 2025, GE Aerospace guided to:
- Mid-teens total revenue growth, up from prior low double-digit guidance
- Operating profit of $8.2 to $8.5 billion, a $350 million increase at the midpoint
- Adjusted EPS of $5.60 to $5.80, over 20% growth at the midpoint
- Free cash flow of $6.5 to $6.9 billion, up from $6.3 to $6.8 billion previously
For full-year 2028, management raised guidance:
- Operating profit target increased by $1.5 billion to $11.5 billion
- Free cash flow target raised to at least $8.5 billion
Management highlighted:
- Commercial services revenue growth as the primary profit driver through 2028
- Pricing actions and productivity expected to offset inflation and new product ramp costs
Takeaways
GE Aerospace’s Q2 results and revised outlook validate the strategic pivot to a services-led, cash-generative model with high backlog visibility and operational momentum. Execution on LEAP and GE9X ramp, aftermarket pricing, and supply chain stability remain critical to sustaining the profit and cash flow trajectory.
- Aftermarket Outperformance: Services revenue and shop visit growth are exceeding expectations as airlines extend fleet life and shop visit scope expands, driving both near-term and long-term profit upgrades.
- Margin and Cash Flow Leverage: Operational improvements, pricing, and repair technology are supporting margin expansion and robust free cash flow conversion, enabling higher capital returns.
- Execution Watchpoints: Investors should monitor LEAP profitability ramp, GE9X cost-out, and the pace of supply chain normalization as volumes scale further in late decade.
Conclusion
GE Aerospace’s Q2 and updated outlook mark a decisive acceleration in services-driven growth and cash generation, underpinned by operational execution and a record backlog. Sustained aftermarket demand and disciplined capital allocation set a high bar for the coming years, but execution on new product ramps and inflation management will determine whether the upgraded targets are achieved.
Industry Read-Through
GE Aerospace’s results highlight the structural shift toward long-cycle aftermarket revenue as the primary engine of value in commercial aerospace, with aging fleets, supply constraints, and shop visit intensity driving both pricing and volume. Suppliers and peers in the engine and MRO value chain should expect continued pricing discipline and capacity investments. Defense contractors will note GE’s optimism around international demand and localization, while the company’s confidence in open fan and adaptive cycle propulsion signals a technology race that will define the next decade in both commercial and military aviation.