GE Aerospace lifts 2024 outlook; sees supply constraints hitting jet engine deliveries

By Rajesh Kumar Singh and Shivansh Tiwary

(Reuters) -GE Aerospace raised its full-year profit forecast on Tuesday after quarterly earnings topped Wall Street estimates, but said supply constraints remain an obstacle in meeting booming demand for jet engines.

In an interview, CEO Larry Culp said that while the company has made progress in improving supplies, it is not enough to satisfy all of its customers.

GE Aerospace reported a 20% decline in new engine output in the second quarter from a quarter ago. Deliveries of LEAP engines, which power Airbus and Boeing narrowbody aircraft, is now estimated to be flat to up 5% this year, compared with annual growth of 10% to 15% expected earlier.

The company trimmed its full-year revenue outlook, citing lower engine output expectations.

It had previously attributed the bulk of delivery challenges to 15 supplier sites. Culp said two-thirds of those sites have shown a "significant" step up in the output, but the improvement was not across the board.

"Our suppliers are getting better at problem solving and collaboration," Culp said in an interview. "We need to do more."

Shares of the company were up more than 3% in premarket trading.

PARTS AND SERVICES

GE Aerospace, which became an independent company this year, has a dominant share in the engine market for narrowbody jets and enjoys a strong position in widebodies. More than 70% of its commercial engine revenue comes from parts and services.

There has been a surge in demand for after-market services as a strong rebound in travel and a lack of new planes due to production and engine issues has forced airlines to keep older jets in the air for longer.

GE said services revenue at its commercial engine business increased 14% from a year ago. However, persistent shortages of labor, parts and raw material have made it harder to keep up with customer demand.

Limited capacity at MRO shops has become a major constraint for the global airline industry. Some airline CEOs have called the engine repair delays a bigger problem than production issues at Airbus and Boeing.

GE Aerospace has deployed 500 of its engineers at suppliers and sub-suppliers' sites and is using artificial intelligence to get around the bottlenecks.

Last week, it unveiled a plan to invest more than $1 billion over five years to expand its maintenance, repair, and overhaul (MRO) facilities worldwide and reduce turnaround times for its customers.

The company said internal shop visit output improved 15% from a quarter ago and turnaround time for LEAP shop visits decreased to 86 days compared to roughly 100 days in 2023.

"We have seen a lot of progress. Unfortunately, not nearly enough," Culp said. "The airlines would clearly want it to be better."

The company expects annual adjusted profit in the range of $3.95 to $4.20 per share, compared with its prior forecast of $3.80 to $4.05.

Adjusted profit for the second-quarter came in at $1.20 per share, higher than 99 cents a year ago expected by analysts in a LSEG survey.

(Reporting by Rajesh Kumar Singh in Chicago and Shivansh Tiwary and Abhijith Ganapavaram in Bengaluru; Editing by Arun Koyyur and Sharon Singleton)