GE Aerospace lifts 2024 profit forecast amid supply-chain challenges

By Rajesh Kumar Singh and Abhijith Ganapavaram

(Reuters) -GE Aerospace on Tuesday raised its full-year profit forecast even as it continues to wrestle with supply-chain challenges to keep up with strong demand for jet engines.

It also slashed estimates for LEAP jet engine production this year amid Boeing's ongoing production challenges.

Shares of the aerospace giant were up 6% in mid-day trade.

The company has been benefiting from a surge in demand for after-market services as a strong rebound in travel and a shortage of aircraft due to production and engine issues has forced carriers to keep older jets in the air for longer.

Analysts say Boeing's ongoing safety crisis is also expected to be a near-term benefit for GE Aerospace as it increases demand for older engines and allows the company to supply more of its LEAP engines in the aftermarket.

However, persistent supply-chain constraints have made it harder to meet customer demand.

In an interview, CEO Larry Culp said while the company continues to face shortages of forgings, castings, certain electronics and machine parts, demand for its products is booming.

"It's no one issue," he said. "We are chasing a moving target."

The company said its total engine deliveries were short of its target in the first quarter due to material availability issues.

The shipments of LEAP engines, which power the narrowbody aircraft of Airbus and Boeing, were flat year-over-year in the March quarter. Spare engine shipments were down slightly.

Culp attributed the bulk of delivery challenges to 15 supplier sites. To get around the problem, he has deployed more engineers and resources.

Yet, he said the company has more work to do.

GE Aerospace, which became an independent company this month, has a dominant share in the engine market for narrowbody jets and enjoys a strong position in widebodies. More than 70% of its commercial engine revenue comes from parts and services.

Engine makers typically sell engines to airlines at a discount and recoup the money by selling parts and services - which are priced at a premium - over the life of the engine.

Delays in aircraft retirements are estimated to result in higher-than-expected shop visits this year, GE Aerospace said.

But it now expects LEAP output to be up 10% to 15% this year from a year ago, down from its previous estimate of a 20%-25% growth.

CFM International, GE's joint venture with Safran, is the sole supplier to Boeing's 737 MAX family of jets. Earlier this month Reuters reported that MAX production had dropped into single figures per month and that industry sources questioned how long a resulting engine surplus could keep building up.

Culp said Boeing was still taking deliveries for MAX jet engines at the same rate.

"At this time, we're confident that we can continue to deliver at these rates," he said. "And that will not create a financial problem for us."

GE Aerospace expects 2024 operating profit of $6.2 billion to $6.6 billion, compared with its earlier forecast of $6 billion to $6.5 billion. Adjusted earnings for the year are estimated at $3.80-$4.05 per share, compared with $2.95 per share in 2023.

It reported an operating profit of $1.5 billion in the March quarter, up 24% from a year ago.

(Reporting by Rajesh Kumar Singh in Chicago and Abhijith Ganapavaram in Bengaluru; Editing by Anil D'Silva, Emelia Sithole-Matarise, Chizu Nomiyama and Nick Zieminski)