Fixing The Supply Chain Is A Wrenching Experience At GE Aerospace

GE Aerospace Chairman and CEO Larry Culp likes the problems he has these days. He is betting that his suppliers and investors will like the solutions, too.

GE’s 2024 fourth-quarter and full-year financial results beat Wall Street’s expectations, and the year-old stand-alone company provided an outlook for 2025 that was better than expected sending shares rocketing 9% on the day of the news. As a percentage, management expects revenue growth this year in the low double digits.

Investors’ focus going into the earnings report was on how strong aftermarket performance would be at GE Commercial Engines & Services (CES) as well as on year-ahead expectations, according to Bernstein analysts. At the time, investor sentiment had shifted away from favoring aftermarket-focused companies and toward OEM work. Supply chain issues also dominated 2024 headlines, and GE was not immune.

But Culp’s commentary was both measured and confident. “If we can continue to drive sequential improvement, we can continue to eliminate waste, and we can continue to be a great collaborator with our suppliers,” he tells Aviation Week. “I’m highly optimistic that we’ll be able to keep pace with the airlines, the airframers and the like as we look forward through the rest of this decade.”

Without a doubt, the aerospace engines giant has a lot more work to do to improve its supply system, Culp says. “But hey, that’s what we do, and actually, it’s not a problem—it is a true opportunity,” he continues. “A problem is back in the COVID-19 pandemic, when [air travel] demand goes to zero, and you’ve got to look people in the eye and send them home. That’s a problem. This I’ll take seven days a week. This is a generational opportunity.”

GE is trying to seize the moment. It has a $170 billion backlog, including $154 billion under CES. Aftermarket demand is greater than the company can meet, as spare parts availability continues to constrain growth. But while supplier constraints may limit growth, the upside should stay strong for multiple years, analysts say.

“We’re going to be busy through the rest of this decade, undoubtedly,” Culp told the Barclays Industrial Select Conference in February.

The work cuts both ways—meeting demand and improving supply. Culp says the better-than-expected 2024 results and 2025 outlook come on the back of a long, hard slog of fixing the engine giant’s supply chain that will not end soon—or maybe ever.

“I’m not going to be one of these people who will tell you that the supply chain challenge is going to cease in the third quarter of 2025 or the first half of 2026,” he says. “I think we’re going be at this for a while.” There likely will be no inflection point where “it’s not perfect, and then one day it will be perfect,” he adds.

GE’s Flight Deck lean-out program remains the guidebook for the company’s improvement effort. And a new internal Technology and Operations office, headed by Senior Vice President Mohamed Ali, brings together supply chain, engineering, quality control and other support functions to apply at both GE and supplier facilities. The company has placed more than 550 of its own employees across its suppliers, with managers now focused on 15 “priority” sites.

As a result, GE saw a meaningful improvement from the first half of 2024 to the second half as material input improved 26% across the priority supplier sites. In early 2024, these suppliers shipped only half of their committed targets to GE, but by the end of 2024, they were shipping more than 90%. This helped boost CES service revenue 17%, while total engine units increased 18% in the second half.

At one unidentified major supplier—“a name you would know,” Culp tells Aviation Week—a weeklong Kaizen process improvement workshop boosted the subcontractor’s output more than 50%. GE managers are confident there will be future improvements there, because that one Kaizen workshop did not address everything.

“The operators, frankly, in that instance . . . I’m not sure had ever really been asked about improvement,” notes Culp, who had a 25-year career at Danaher before taking over what was then General Electric in 2018. “There were a number of things that were relatively straightforward to fix in terms of machines. There was a cleanup of the facility to allow better [manufacturing] flow.”

How does that happen at an established supplier? “In a lot of these manufacturing operations, you grow numb to your environment,” Culp continues. “It happens inside our company as well. I’m not strictly describing something in the supply base. But if you can bring fresh eyes, teach people to see . . . the waste [and] understand the merits of single-piece flow as opposed to batch manufacturing, you really can melt away a lot of waste. And that’s . . . what happened there.”

Culp describes supply chain improvements as a “game of inches.” The goal has been a steady, reliable productivity boost that allows both GE and its suppliers to meet or exceed financial goals. The company’s latest quarterly results and year-ahead outlook reflect that. The company reported nearly $10 billion in revenue for the fourth quarter of 2024, 16% above the same 2023 quarter, adjusted for the April 2024 corporate split. Adjusted earnings per share (EPS) of $1.32 was up 103%. Free cash flow of $1.5 billion rose 21%.

For all of 2024, GE Aerospace reported adjusted revenue of $35.1 billion, up 10%, and EPS of $4.60, up 56%. The Evendale, Ohio-based company also returned more than $6 billion to shareholders and projected returning another $8 billion in 2025, including a dividend raise of 29%.

Such earnings results depend heavily on aftermarket services, from which GE derives about 70% of its annual revenue. Fourth-quarter 2024 aftermarket sales rose 12% year over year, reflecting a richer work mix and scope, including widebody engine pricing, that outweighed fewer internal shop visits, which were down 3% to 2023 levels. TD Cowen analysts say these trends should continue this year, given sanguine widebody demographics—the GENx engine is entering the first wave of shop visits and GE90s their second—and low price elasticity. Shop visits for engines from GE Aerospace-Safran Aircraft Engines joint venture CFM International also should grow 5% compared with 2024.

What is more, the mix of CFM Leap engine aftermarket revenue is expected to improve in 2025. About 25% of the Leap visit backlog is at external shops. By comparison, external Leap visits were 10% of 2024’s mix of revenue and should be 15% of 2025’s Leap visits. According to the analysts, GE enjoys a higher profit margin on external shop visits, as it only sells spare parts to them, compared with internal shop visits where the operating margin is weakened by labor for which GE also pays. Fortunately, external Leap shop visits do not cannibalize internal shop visits because GE’s own network is capacity-constrained.

GE leaders told TD Cowen in February that the company has been trying to send clear demand signals to its suppliers and stressing aftermarket demand so that suppliers do not make independent assessments about Airbus and Boeing build rates. GE pays the supply chain the same price for parts regardless of whether it sells the product to the aftermarket or to an OEM customer. Thus, it is GE that price-­discriminates depending on market channel, not the supplier, if those parts flow through GE, TD Cowen says.

For his part, Culp will not call out individual companies or types of suppliers, or even suggest that one area of GE’s supplier base is more problematic than another. The OEM is trying to lift its supplier base across the board. “I would say from a commodity perspective, the issues are actually broad,” he tells Aviation Week. “Some of the suppliers that we’re working with closely, watching closely, you would recognize by name. There are others that you actually might not have ever heard of. That’s the nature of our supply chain.

“The constraints come in various forms,” he continues. “We helped some of our suppliers think through how to structure and staff a second shift. We had process bottlenecks that we were able to break. We had, in some instances, specifications that we needed to align with manufacturing capability. So it is not one thing; it’s scores of things that we have been working our way through. But I think that’s just the nature of a business that is this complex and technical.”

On March 12, the company announced plans to invest nearly $1 billion in its U.S. factories and supply chain this year. GE also announced it will hire around 5,000 U.S. workers in 2025, including manufacturing and engineering roles. “This new investment is nearly double last year’s commitment and will help increase engine safety, quality and delivery, benefiting more than two dozen communities across 16 states,” the announcement states.

Half of the nearly $1 billion is going toward building internal capacity and expanding several key sites, especially those that support the production and assembly of Leap engines, where deliveries are expected to increase 15-20% this year. The investments are coordinated with Flight Deck to improve safety, quality, delivery and cycle times. But the almost $1 billion investment also includes more than $100 million dedicated to the supplier base, “providing investments to ensure suppliers are using the newest tools to produce parts, further reducing defects and supply chain constraints,” the announcement states.

Such investments preclude needing to do questionable mergers and acquisitions, Culp has said. He has repeatedly stated that he is not looking to gobble up suppliers.

“With Flight Deck, we can go in and have an impact with a lot of our suppliers absent writing an equity check,” Culp told the Barclays Conference. “Have we done that? Will we do some of that? Of course. But I don’t think that is necessarily a pronounced strategy relative to [mergers and acquisitions].”