00:00Let's talk about the here and now to start the conversation off.
00:03And we're in a situation where we've got an award that's having an impact on aviation.
00:09It's having an impact on fuel prices.
00:10What impact are you seeing right now, Ajiz Aerospace, as a result of what is going on?
00:16Well, Guy, first of all, thanks for the opportunity to visit with you this morning.
00:19And what we've seen really is nothing but a continuation of the strength that we saw through the first quarter
00:25of this year.
00:26Right. It's interesting because we thought we might see some change in airline behavior, but we really haven't.
00:33I look at spare parts orders on a regular basis. We were up 30 percent in the first quarter.
00:38We've actually seen those spare parts. Growth rates increased to 40 percent year over year.
00:43We've seen retirements tick down.
00:46We've seen engine removals, which are really a precursor to a shop visit, actually tick up at a rate faster
00:53than we can complete the shop visits currently.
00:55So I think we see our airlines very focused on making the most of the summer flying season, but also
01:01making preparations for the other side of the situation in the Gulf.
01:06Because the lesson I think we all took from the pandemic was things come back.
01:10They come back sooner and they come back stronger than we would ever have anticipated.
01:14But you're surprised it's coming later. That, I guess, is the takeaway from this part of the conversation.
01:19You thought we may have seen it already.
01:21I would have thought we would have seen a little bit of change in airline behavior, but we haven't seen
01:25that yet.
01:26So, yes, surprised. Pleasantly so.
01:29If you when it comes and you start to see some effects of this coming through, does it start in
01:35the Gulf?
01:35Is there any hint at this point that maybe some of the Gulf carriers start deferring, start changing behavior?
01:41Is that where it begins and it spreads out?
01:43Well, I think the airlines around the world are being impacted in different ways.
01:47So, depending on where you are geographically, the market segment that you serve, you're seeing different impacts or looming impacts
01:55on your business.
01:55I mean, we've seen a number of airlines that have adjusted their schedules over the next several months.
02:01So, that's happening, but in terms of the interface that we have, again, both with respect to keeping the planes
02:07they have today in the air during this prized summer flying season,
02:11but also making preparation for the other side of the conflict, the airlines really have not changed the way they
02:19are servicing today's fleets and preparing to expand and modernize.
02:23But where do you think it, what does it look like? When it shows up, what does it look like?
02:28When we get through the summer, we get into the fall, into the autumn, what are the early things that
02:34we, kind of watching the aviation sector,
02:37looking for clues that things are maybe starting to slow down or there's an effect? What do I look for
02:42in the industry?
02:43Well, what we're going to be looking for are those same indicators I mentioned earlier, right?
02:45What's happening with spare parts orders? What's happening with retirements? What's happening with engine removals?
02:51Are airlines in a position where they can't or have decided not to prepare for the other side?
02:58We were out a week and a half ago at an investor conference in New York, and what we basically
03:02reiterated is that in 2026, given what we see,
03:05we feel very good about our services growth coming in at a mid-teens rate, and our medium-term outlook,
03:12which has our...
03:16...attack for 2027. So I don't want to in any way suggest that nothing might happen,
03:21but from what we see right now, a hyper-focus on the near-term and preparations for the other side.
03:27How do you get GE ready for that? What do you do? Are you getting it ready? Are you preparing
03:32for a storm?
03:33Is it kind of... What are you thinking about in terms of the way you run the business to get
03:36ready for that?
03:37Because that's the lesson of the past, the recent past, is get ready, use this time wisely to prepare for
03:42that kind of a story.
03:43Well, I couldn't be more proud of the way the GE Aerospace team is dealing with both the short-term
03:48and getting ready for possibilities.
03:52But again, when you look at our business, given the strength of the backlogs that we have, both in narrowbodies
03:57and widebodies,
03:58well into the 2030s, the significant demand that we have supporting a million passengers in the air at any one
04:04point in time,
04:05with our engines under weighing, a lot of what we're doing, not only in our own operations and our manufacturing
04:11and our service footprints,
04:12but also in partnership with our supplier partners, has given us the opportunity to put up the numbers that we
04:19did in the first quarter
04:20to see lead engine deliveries up over 60%, for example.
04:23So a lot of good growth. We want to make sure that we're in a position to continue to support
04:29the airlines in whatever way we do well into the next several years.
04:34You bring up the supply chains. Let's talk about that for a moment.
04:36Post-pandemic, the supply chain has been the issue.
04:39Trying to get the supply chain to work, to deliver, has been the challenge.
04:43Are you beginning to win that war now? Is that battle turning in your favor?
04:48Do you think you've got this situation under control in a way that you haven't for maybe the last few
04:52years?
04:52We have eight quarters now, sequentially, where we have seen significant increases in inputs from our critical supplier partners.
05:01I think what we've actually done is thrown the winning the war framework out the window
05:06and gotten into deep, technical, collaborative problem solving,
05:11making sure we're making the most of existing resources with our supplier partners
05:15while we're investing medium to long term in additional capacity.
05:19There's no way that we take our leap deliveries up over 60% in the first quarter.
05:24No way we have our services revenues up over 30% if we weren't improving the supply chain.
05:30The challenge, Guy, that I think a lot of people don't appreciate is this is a wonderful opportunity
05:35that we'll be wrestling with for the rest of this decade.
05:38There'll never be a moment where we're finished because we have to do more in the back half of this
05:42year
05:42than we did in the first half of this year.
05:43The same will be true in 27 and 28.
05:46That's the beauty of having $170 billion worth of backlog.
05:50We know for the rest of this decade we're going to need to get better in our own operations
05:54and in partnership with our suppliers.
05:56But if we're together, nobody wins.
05:59But if we're collaborating, everybody does.
06:01That sounds like you're winning.
06:02That sounds like you're in a much better place right now.
06:05In terms of competition, let's just talk about competition for a moment.
06:10You are in a good place right now.
06:12Scott Kirby at United has been singing your praises this morning,
06:15talking about you guys and the job that you're doing.
06:18He's talked less favorably about the competition, Rolls-Royce.
06:21Rolls-Royce is going through a transformation right now.
06:26It will emerge from that at some point.
06:28Does competition get tougher further down the road when Tufan is in a different position,
06:34when he's got a handle on that business and a handle on his engines?
06:37Does competition get tougher?
06:38Well, first off, I'm delighted to hear Scott's comments.
06:42We're celebrating with United 100 years of their operations and our partnership with them.
06:47Scott's a friend.
06:48We're focused on the airlines.
06:50If we focus on the airlines and what they need, and that's the beauty of our business.
06:54We don't have a one-and-done transaction.
06:57We live with these engines from delivery for 20 or 30 years.
07:01And that is what I think enables us to make sure that whether it's a shop visit they need completed
07:07in the next 90 days
07:09or working with them with respect to delivering on their skylines,
07:12we're in a position to make sure we understand their needs and then turn around and do everything we can.
07:18And 2026, the year of what we call being more customer-driven, competition will do what competition does,
07:24but we're far more focused on our customers today.
07:26Okay.
07:27Competition may get tougher.
07:28I'm taking away from that, but you think you've got a handle on it.
07:32Is that the right interpretation?
07:34I'll let you and others talk about where our competitors are.
07:38Okay.
07:38I think in terms of the way our senior team and our board are oriented, let's be focused on the
07:44customer.
07:44Okay.
07:45Customer will lead the way.
07:47President Xi is coming in September to the United States.
07:49Should I expect big GE orders?
07:51Well, we were very pleased with the news we had in Beijing when both Kelly Ortberg from Boeing and I
07:57were there, honored to be there with the president.
08:01I think the foundation was laid, the door is open, and there will be a good bit of workup for
08:05the course of the summer.
08:06There was an expectation that maybe that trip would have delivered more.
08:08Is it a kind of, is it a two-part story?
08:12Part one we've seen, part two comes in September.
08:15I think it's a journey, and there was an important step taken in Beijing, no doubt, in my mind.
08:20Okay, final quick question.
08:22We're almost done with the current generation of engines.
08:24We are going to be moving on to the next generation of engines, which you see as being an open
08:29rotor kind of configuration with huge blades at the front of the engine.
08:34Many of the airline CEOs that I talk to at the moment say, let's just fix what we've got right
08:39now and make sure it works properly.
08:41What we want is reliability.
08:42What do you say to that in terms of what this next generation of aircraft engines will actually do?
08:48We couldn't agree more.
08:50Right here we are in 2026.
08:52Our LEAF engine is still a relatively new engine.
08:55Our GE NX, our leading widebody engine, still relatively new.
08:58Our GE90, really the workhorse in the widebody space, probably a teenager, not a mature adult.
09:05So these are engines that are going to fly for decades, and we are working to improve the durability and
09:11reliability of those engines.
09:12That said, we need to be investing in 2026 to be ready for that next generation narrowbody.
09:18That may be 10 or 15 years out from where we are today.
09:21If we're not investing today, we're not ready then.
09:23We do think that the open fan architecture will allow us to address those reliability and durability concerns, as well
09:32as deliver the next breakthrough in efficiency and sustainability.
09:36So it becomes simpler and not more complicated.
09:38Exactly.
09:39And that's the technology breakthrough that allows us to do both, as my friend Jim Collins would say, to employ
09:45the genius of the end.
09:47Durability and efficiency.
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