GE Aerospace (GE) Q4 2025 earnings review
Orders Explode, But Mix Shift Compresses Margins
GE Aerospace closed 2025 with a massive commercial signal: Total orders surged 74% to $27.0B, pushing the backlog to ~$190B. While top-line growth remains robust (+20% Adjusted Revenue), the bottom line showed strain from success. Selling more new engines (Equipment revenue +7% with units up 40%) naturally diluted margins, causing Commercial Engines & Services (CES) operating margin to contract 420 bps to 24.0%. 2026 Guidance forecasts continued double-digit growth, aiming for ~$10B in operating profit.
🐂 Bull Case
Total orders jumped 74% YoY to $27B. The book-to-bill ratio is exceptionally high (Orders $27B vs Revenue $12.7B), securing revenue visibility well into the late 2020s.
The 'Flight Deck' operational model is working. Material input from priority suppliers increased 40% YoY, enabling a 25% increase in engine deliveries and record LEAP deliveries (+28%).
🐻 Bear Case
Commercial segment margins collapsed 420 basis points YoY to 24.0%. While partly due to mix (selling more OE engines vs spares), the magnitude of the drop suggests rising R&D and installation costs are biting harder than expected.
Despite a 13% revenue increase, Defense (DPT) margins contracted 70 bps to 8.9%. The segment continues to struggle with inflation and investment costs, lagging the commercial recovery.
⚖️ Verdict: 🟢
Bullish. The margin compression is largely 'good pain'—the result of finally delivering new engines (low margin) that will feed the high-margin service backlog for decades. The 74% order spike is a massive vote of confidence from customers.
Key Themes
Commercial Margin Compression
CES operating margin dropped sharply from 28.2% in 24Q4 to 24.0% in 25Q4. Management attributes this to a 'lower spare engine ratio,' higher install deliveries (GE9X), and increased R&D. While OE deliveries are necessary for long-term health, this mix shift creates a near-term earnings headwind that investors must monitor closely in 2026.
Services Juggernaut
Services revenue grew 31% in Q4 (vs 24% for the CES segment overall). Internal shop visit revenue rose 30%, and spare parts revenue grew >25%. As the installed base of LEAP and GE9X engines grows, this high-margin recurring revenue stream is accelerating.
Supply Chain Throughput
After struggling with constraints earlier in the year, GE Aerospace increased material input from priority suppliers by >40% YoY. This unlocked a 25% increase in total engine deliveries and a 30% increase in defense deliveries. The bottleneck is widening.
Defense Margins Lagging
The Defense & Propulsion Tech (DPT) segment remains a drag on group profitability. Despite volume growth, margins fell to 8.9% (vs 9.6% a year ago). Inflation and 'investments' (likely self-funded R&D for next-gen programs) are offsetting price and volume gains.
Next-Gen R&D Intensity
R&D expense increased significantly, contributing to the margin miss. Specific investments cited include the RISE program (open fan architecture), hybrid electric demonstrators, and the F110 collaboration with Shield AI. This spending is necessary for the 2030+ timeframe but is weighing on current quarters.
Other KPIs
Accelerating relative to historical norms but decelerating sequentially from Q3's peak. Up 20% YoY, driven by strong pricing and volume. FY25 total revenue landed at $42.3B (+21%).
Stable/Growing. Up 15% YoY. Full year FCF reached $7.7B (+24%), demonstrating high conversion rates despite the inventory build required for the production ramp.
Decelerating growth. Profit grew only 5% YoY despite 24% revenue growth, highlighting the negative mix shift toward lower-margin OE equipment sales.
Guidance
Decelerating. Following +21% growth in FY25, the law of large numbers is kicking in. 'Low double digits' implies ~$46-47B.
Decelerating growth rate. The midpoint ($10.05B) implies ~11% YoY growth, compared to the 25% growth achieved in FY25. Margins are expected to remain flat/stable (FY25 was 21.4%).
Stable/Growing. Suggests 4-9% growth over FY25's $7.7B. Conversion remains >100% of Net Income, indicating high quality of earnings.
Key Questions
CES Margin Bridge
Commercial margins contracted 420bps this quarter. Can you quantify the specific impact of the 'lower spare engine ratio' versus the GE9X ramp costs? At what production rate does the OE drag stabilize?
Defense Profitability Path
DPT margins stepped back to 8.9% in Q4. With Defense deliveries up 30%, why aren't we seeing better operating leverage? When do you expect this segment to return to double-digit margins?
Order Visibility vs Delivery
Orders were up 74%, but Equipment revenue grew only 7%. Is this divergence purely due to long lead times, or are there lingering supply chain bottlenecks specifically impacting final assembly of new orders?