Bloomberg Audio Studios, podcasts, radio news. We've got some aerospace royalty here in the room, as you say, Larry Culp, the CEO and chair of General Electric, the world's biggest jet engine manufacturer. John this is a company that is newly independent. It's a standalone business. The first time we've see numbers being reported on that basis, and the numbers we've seen being reported look good and being taken well by the market. That stock I think is up circa
three percent this morning. It looks like a beat and a rays from Larry Culp. Good morning, good afternoons. I probably should say nice to have you with us, Thanks for joining us.
I good to be with you.
Talk me through, took me through the strength, taught me through where it has come from. Where is the strength of this beaten rays within the business?
Well, guy, it's really rooted in the demand that we see both from the airlines and from the airframers for more of what we do. Seventy percent of Gerospace on a standalone basis comes in the aftermarket, supporting the airlines with parts, with services of all types to keep today's fleets in the air and given the activity that they're seeing with the flying public. It's all we can do to keep up with what they'd like to see from us.
So the sixty plus percent improvement in earnings, the nearly twenty percent improvement in free cash we announced today is really a function of the strength that we're seeing in our commercial engines and services business in the aftermarket.
Is that sustainable? Does that carry on throughout the rest of this year into twenty twenty five? Is that something that is here now gone tomorrow? Because we're starting to see some warnings coming through, particularly from the narrow body OPERATESUS in the United States, and as of the beginning of this week with run here.
In Europe, well, we've certainly seen those as well. It seems like that commentary is really geared more toward pricing than anything else. But if you look at our order book in the second quarter alone, nearly forty percent year every year we see our utilization of the fleets, both the mature fleet which we power with the CFM fifty
six have been steady. An engine that folks might thought might begin to fade our newer generation technology, the leap engine on both the seventy three seven Max and the Neo at Airbus that's probably four points in terms of share, so our utilization could not be higher even just looking at the third quarter here, we have probably ninety percent of our third quarter projection in backlog today with respect
to parts. So in terms of the demand signals we're seeing from our customers, things are strong.
The hours being flown are going to remain consistent, you think.
We believe so, and going forward they're going to increase.
That's the kind of the oldest story, that's the existing fleet that's already out there. As you say, the maintenance, the maintenance story is very strong. The margin off that is very very strong. The story sting of the Farmberas Show and all the air shows recently and throughout this industry has been what has been happening with the supply chain. Ab Bus Learning gets guidance for the year talking about
engines within that guidance. Is the supply chain story getting better or is it getting worse?
Guy, I'm strongly of the view it's getting better. It's really all about the rate of improvement. And what we shared earlier today with investors is that we didn't have the output that we had anticipated in the second quarter with our newest generation engine in particular with our Leap engine.
But we're going in using our flight deck, our lean operating model to help our suppliers help us jointly problem solving YEP, really understanding constraints at the point of impact, and we saw tremendous results from that in the second quarter. Didn't translate into as many deliveries, perhaps as our frame or customers would have liked, but we saw two thirds of the suppliers that we worked with improve their output to us by nearly twofold. It's discouraging.
Just kind of told me through what's happening. So originally the guidance was for twenty five percent improvement for that engine. Then you went, I think it was an eight. You are kind of ten to fifteen. Now you're a kind of flat to five exactly. That feels like it's not getting better. You're telling me that it is below the surface is getting better.
It's not getting better at the rate that we had anticipated, but it's getting better. If you look at the sequential trends and that from an operating perspective, that's all that really matters. Week in week out, quarter in quarter out. Are we seeing more and are we seeing more predictably. Okay, we're getting better in that regard. I'm encouraged by what I've seen here just in the first three weeks of July.
A lot of work not only in the second half still in front of us, but as we think about twenty five and twenty six, but working in that way, yielding those sorts of results will I think put us all on the ramp.
So the benefit comes next year. That's when we start to see the big benefit coming through.
I think some of the actions that we took in the second quarter will help us in the third quarter and in the fourth quarter of this year.
Why is it taking this is a question I put the gill four you. Why is it taking so long to resolve this issue within the supply chain?
Well, I saw a gillom yesterday. We talk about this every time we're together. I think it's important for everyone to remember, guy, that we turned the industry down to almost zero during the pandemic, and what we're trying to do now is turn it all the way back on. And that's hard. We lost not only people during the pandemic, we lost a tremendous amount of experience technical people throughout the supply chain. In GIMP's facilities, at Boeing, at g
Eero space and throughout the supply chain. We're building all of that capability back and because those roles are filled now not by a fifty eight year old, but perhaps by a twenty eight year old, there's a lot we have to do in terms of not only adding capacity but capability to meet the ramp that we all marked upon.
He told me this one. He thinks we've already got another couple of years Togo though, until we resolved some of these issues. Does that timeline feel kind of about right to you as well?
We're trying to make progress every week, but I think this is a multi year effort that the industry faces.
In terms of what we bring up gilforty. How is your relationship changing with their bus? You traditionally be really tight with Boeing, tom Endos, I know, well, you know, well, now is now on your board? Does that does that signal to change in relationship with that bus? Well?
I think we have served both of the major air framers well over time. Right we don't have over two thirds of the departures in the narrow body space serving Boeing alone. We're very excited about the news we put out last week with the A three twenty one xl R now approved but only proved with the GDE Leap
one A right our engine. So there's a lot that we're doing with Airbus, not only in terms of the ramp but next generation technology as well, and we're trying to be as strong and as good a partner to Gillom and Christian and their teams as we possibly can be. We want to do the same thing with the folks at Boeing. Of course, yep, we can do that as long as we invest into technology, use flight deck to deliver safety, quality, delivery and cost to their requirements and jointly serve the airlines.
Defense and just spend a moment if we can as we conclete things. Talking about defense, do you think spend spending is going up? Do you think that Trump presidency would mean great to defense spending? Do you see defense spending going up in Europe in a Trump presidency because of the requirements in terms of that's GDP not that's GDP spending to GDP. How do you see that story progressing and what does it mean ultimately for Ge?
Well, I think on both sides of the Atlantic. Given the authorities that I speak with, spending will be paced by the threat, and the threat is only increasing. Therefore, be it in combat aircraft, be it in rotary craft. The two areas that we serve most directly, we think we will see looking out over the next five to ten years, have sustained growth.
Just one final quick question before I'm full of throw banks at this GDA. Was it an easy decision to continue your contract? Can I one hundred percent rule you out as a Boeing job?
How about one hundred and one percent?
One hundred and one percent, There you go, one hundred and one percent. I know the guys in the studio were talking about this a little bit earlier on. So one hundred and one percent, there you go, John, Lisa, one hundred and one percent. Larry Kulp is staying at GE and a fantastic set of numbers delivered earlier on today. Looks like the market likes what it hears.