GE Aerospace's Post-Spinoff Margin Expansion Is Just Getting Started

Larry Culp took over a company that was burning through cash, drowning in debt, and losing credibility with every quarterly report. The GE Capital long-term care insurance liabilities alone threatened to consume the entire enterprise. Power turbine warranties were haemorrhaging cash. The aviation business — always GE's crown jewel — was being starved of investment to fund losses elsewhere.

Culp's strategy was brutal in its simplicity: sell everything that isn't world-class, fix the operations of what remains, and then separate the businesses so the market can value each on its own merits. He sold the BioPharma unit to Danaher. He wound down GE Capital. He cut 30,000 jobs and consolidated manufacturing. And then he split the company apart.

The result is a case study in corporate restructuring. GE Aerospace, freed from the conglomerate overhead, immediately demonstrated what the aviation business had been all along: a high-margin, recurring-revenue franchise with a 40-year installed base of engines that require regular servicing.

Here's what makes GE Aerospace exceptional: 70% of its revenue comes from servicing engines it's already sold. Every LEAP engine on a Boeing 737 MAX or Airbus A320neo — and there are over 3,500 in service — generates decades of maintenance, overhaul, and parts revenue. The margin on service contracts runs at 35-40%, roughly double the margin on new engine sales.

This is the razor-and-blade model perfected. GE sells engines at thin margins to Boeing and Airbus, then earns outsized returns on the service contracts for 25-30 years. The installed base only grows. More aircraft deliveries mean more future service revenue. Even during downturns when new orders slow, the existing fleet still needs servicing.

The analogy I reach for is Rolls-Royce, which trades at a similar premium to its historical average after demonstrating the same dynamic. But GE's installed base is 2-3x larger than Rolls-Royce's, and its defence exposure provides a government-funded revenue floor. In two decades of covering industrials, I've rarely seen a business model this well-insulated from cyclicality.

GE Aerospace powers roughly 75% of US military aircraft through engines like the F110 (F-16), F414 (Super Hornet), and T700 (Black Hawk). Defence accounts for approximately 25% of revenue and provides a countercyclical buffer when commercial aviation slows.

The F-35 engine competition — where GE is pitching the XA100 adaptive cycle engine against Pratt & Whitney's incumbent F135 — represents a potential $50-100 billion lifetime programme value. A win here would transform the defence backlog and add decades of service revenue. Even without it, the existing defence portfolio provides $15-17 billion in annual, government-backed revenue.