GE Aerospace Turns Engines Into Long-Term Profits
Since completing its historic transformation into a focused aerospace leader in April 2024, GE Aerospace (NYSE: GE) has been a standout market performer. Investors have applauded GE Aerospace’s climbing stock price and a steady stream of major engine orders.
The headlines often focus on the impressive technology of its jet engines, the powerful hardware bolted to the wings of the latest aircraft from Boeing and Airbus.
But this picture presents a puzzle for investors trying to understand the company’s real value. The initial, multi-million-dollar sale of a new jet engine is not the primary source of GE's long-term profit.
This reality raises a critical question: Where does GE's true financial power come from if the value is not simply in building and selling new engines?
The answer lies in a carefully crafted business model that prioritizes the long game over the initial sale.
The "Razor": A Foot in the Door
The first step in GE’s strategy is getting its engines onto an aircraft wing. This is the "razor" in the classic "razor and blades" business model. When GE sells a LEAP engine for a Boeing 737 MAX or an Airbus A320neo, its main objective is not immediate profit. It is to win a highly coveted slot on that aircraft for its entire operational life, which can span 20 to 30 years.
To secure these placements, GE engages in fierce competition from sector rivals, such as RTX's (NYSE: RTX) Pratt & Whitney. This intense environment often leads to aggressive pricing and very thin margins on the initial hardware. The real prize is not the one-time transaction, but the expansion of the company's global installed base of approximately 45,000 commercial engines. This fleet is so enormous that it powers three out of every four commercial flights.
This model, however, is not without risk. GE’s ability to place new "razors" is directly linked to the production health and stability of Boeing and Airbus. Any factory slowdowns or regulatory production caps, such as the one currently affecting the 737 MAX line, can create a bottleneck. These external factors can delay GE's ability to grow its fleet, underscoring that the strategy is a long-term investment that accepts lower upfront returns for a much larger, more reliable payoff down the road.
The "Blades": Inside the $140 Billion Service Annuity
Once an engine is in service, the lucrative "blades" part of the model begins, generating a steady stream of high-margin revenue for decades to come. This aftermarket business is the core of GE’s profitability and is built on several key components that lock in customers.
- Shop Visits and Service Agreements: For safety and performance, jet engines require mandatory, comprehensive overhauls called "shop visits" after a set number of flight hours and cycles. To capture this business, GE signs most airlines to Long-Term Service Agreements (LTSAs). These contracts, often priced on a per-flight-hour basis, serve as golden handcuffs, creating a predictable revenue stream that is far less cyclical than that of new equipment sales.
- High-Margin Spare Parts: An engine is a complex assembly of high-tech components, many of which have a limited lifespan and must be replaced to maintain airworthiness. This creates a constant demand for proprietary spare parts, a segment so profitable that its revenue grew by more than 20% in the first quarter of 2025. The LEAP engine fleet, being relatively young, is now entering its first major service cycles, with external shop visits increasing by over 60% year-over-year, signaling a significant wave of future high-margin service revenue.
The financial power of this model is undeniable. In the first quarter of 2025, GE’s Commercial Engines & Services segment posted an operating profit margin of 27.5%, a figure driven almost entirely by this aftermarket strength. Anchoring the entire business is a $140 billion commercial services backlog, representing a massive pipeline of contractually guaranteed future work.
Pricing In the Decades-Long Payoff
Understanding this business model is essential to understanding GE’s stock valuation. The company’s premium price-to-earnings ratio (P/E) of around 37 is not typical for a traditional industrial manufacturer; it is characteristic of a company with a durable, high-margin services business that provides financial visibility for years into the future. GE Aerospace’s analyst community and the market are pricing in the reliability of this aftermarket revenue.
This predictability is a direct pipeline to strong and consistent free cash flow, one of the most important metrics for investors. This cash generation is what funds GE's ability to invest in next-generation technology, such as its RISE sustainable engine program, while also providing tangible returns to shareholders.
The company's plan to deploy over $8 billion in 2025 through dividends and share buybacks is a direct result of the cash-generating power of this services model.
For investors, the key is to look past the headline-grabbing orders for new engines. Those are merely the ticket to the main event. The true health of GE Aerospace is best measured by monitoring the growth of its services backlog, the rate of global flight departures, which fuels demand, and management's ability to navigate the supply chain to deliver on its promises.
This aftermarket fortress is the real engine of GE's financial strength and its mechanism for compounding shareholder value.
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