Senior VP and Chief Technology & Operations Officer, GE Aerospace
GE Aerospace Investor Day | March 2024
GE Aerospace is an American aircraft engine supplier headquartered in Evendale, Ohio, near Cincinnati. It is the legal successor ...
About Mohamed Ali
Mohamed Ali, Senior Vice President and Chief Technology & Operations Officer at GE Aerospace, has been discussing the company's progress on engine durability and next-generation propulsion technology. During GE Aerospace's March 2024 Investor Day, Ali stated that the company had introduced fixes for parts limiting LEAP engine durability in hot and harsh environments, including the shroud, radial drive shaft, fuel nozzle cooling, and high-pressure turbine blade. He said the first production engine with the fuel nozzle cooling fix was at Airbus and that the first production set for the turbine blade fix was ready, with production engines expected to reach mature time on wing for LEAP 1A by the end of 2024 and LEAP 1B in 2025. Ali attributed his confidence to real testing that simulated actual failure modes and dust environments, describing the process as "turn on and turn off" of the problem. Ali has also spoken about the CFM RISE program and open fan architecture, which he described as necessary to achieve more than 20% fuel burn improvement due to physical limitations of ducted engines. He noted that the company had tested a megawatt-class hybrid electric system at 45,000 feet with NASA and was collaborating with Boeing and Airbus on hybrid electric and hydrogen demonstrations. Ali emphasized the company's safety culture, stating that "bringing them home safely is the number one responsibility" and that the engineering team aims to "find safety issues and fix them before they find us." He also discussed the application of Flight Deck, GE Aerospace's lean operating model, to improve supplier output, noting that ten critical supplier sites more than doubled their output in the second quarter of 2024.
Transcript (15 segments)
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Narrator0:00
Millions of people take wing on our creations, and yet there are a billion more still Earthbound who yearn to fly. This is our mission: to lift us all to even greater heights. We were meant to invent, we were meant to explore, we were meant to connect, we were meant to dream, we were meant to fly.
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Steve0:30
Please welcome to the stage Steve Wier. Welcome everyone to GE Aerospace in New York City. It's great to see so many of you since Paris, even more in the room today and online. Just a few reminders before we start. First, materials are on our website as always. Note that some of the statements we're making are forward-looking in nature and based on our best view of the world and our businesses as we see them today, as described in the SEC filings and on our website. Those elements may change as the world changes. We're joined today by Larry Culp, Chairman and CEO of GE Aerospace, Rahul Ghai, GE Aerospace CFO, and many of our business leaders across the company. You'll be able to talk to them if you didn't before, for after the presentation as well. It's a busy day, you can see it in the agenda: presentations, two Q&A sessions, one before the break, one after the break. At GE Aerospace, safety is our top priority. You often hear us talk about safety, quality, delivery, cost, in that order. So let me start with site safety. In the event of a fire or emergency, there are two exits: one to your right of the stage, one behind you. Just proceed to the stairs, and if you have a question, just ask someone. Please do so. With that, I'll pass it over to Larry.
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Larry Culp2:20
Thank you, Steve. Good morning, everyone. Thank you to those of you here in the room with us for taking time to come visit with us this morning, and of course all of you who are dialing in around the world. 2024, our time has come. It was just a week ago that the GE board met and cleared us for takeoff. In 26 short days, we'll be back here in New York on April the 2nd, ringing the bell at the New York Stock Exchange, and we couldn't be more excited about the potential for this business as a standalone, independent industry leader. We're really grateful that you've taken the time to be with us this morning to hear more about our story. I'd like to start, though, to continue on the safety theme, with a reminder about our purpose. Those of you who were with us in Paris, those of you who have been with us elsewhere, know that our purpose statement is quite clear: we invent the future of flight, we lift people up, and we bring them home safely. And those last four words, 'bring them home safely,' could never be more important than they are now, at this moment, as we prepare to bear our responsibilities as a standalone company. Think about it for a moment: in all likelihood, there are 900,000 people in the sky right now with GE Aerospace technology underway. That is an incredible responsibility that every one of the GE Aerospace team members in this room and all around the world carry, which is why we take safety so seriously. Steve talked a moment ago about our lean mantra of SQDC that has really been at the heart of the lean transformation of GE, let alone GE Aerospace: safety and quality before delivery and cost. Easy to say, hard to do. And it really comes back at the end of the day to respect for people, one of the most important tenets in any lean transformation. In that vein, we've asked John Blank, one of our engineering leaders, to share a few remarks with you on this topic by way of video. So we'll go to that video now.
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John Blank4:51
Hi everybody, my name is John Blank and I'm the General Manager for Engineering Material Systems in the Engineering Division at GE Aerospace. I've been with the company for over 22 years, and I'm here today to talk to you about product safety. We do not compromise on safety. Safety of flight is key and critical to who we are. It is our purpose: we invent the future of flight, lift people up, and bring them home safely. Our employees every day understand this purpose, understand this is our number one priority. We continue to invest in our people, in our processes, in our systems, and our technology. One such system and process is our Safety Management System. We voluntarily introduced it and launched it in 2013. We're proud to be the first that introduced and launched it, and also proud that we're the first that the FAA accepted and certified. It creates a robust framework that sets the standard and expectation for safety in our company around policy, around promotion, around risk management, and around assurance of what, who, and when we need to do what. It creates a culture for open reporting where every employee is expected to raise a concern that they see or find anywhere, and that we will address it with a cross-functional team. It created an independent office for flight safety and for engineering, not connected or aligned with the product profit and loss centers. We continue to learn, we continue to grow in our understanding, because safety is a continuous improvement journey, whether it be the system, the process, or the technology. It's a reflection of our learning culture and our lean mindset. We learn from every event that occurs. One such event was in 2016: American Airlines Flight 383 was on the tarmac in Chicago. A high-pressure turbine disc went uncontained, created a fire. Thankfully, nobody was injured. That rotating part is operating at 1300 degrees Fahrenheit, 700 degrees Celsius. It's rotating at over 13,000 revolutions per minute while holding 70 to 80 turbine blades. Those turbine blades are what gives our engine the thrust, the power, and the efficiency that's required. Each one of those blades puts over 25,000 pounds of force on the disc, that's the equivalent of five pickup trucks. Those 70 to 80 blades are putting over a million pounds of force on the disc. That's why the disc is important. From that event, we learned we needed to put improvements in our inspection technology. So in 2017, we started the investment, the development, and the maturation of new enhanced ultrasonic inspection such that we catch these indications before they find us. In 2019, we rolled out this inspection across all of our commercial applications, and to date we've inspected thousands of parts in partnership with our customers and our MRO shops. We're better than we were 10 years ago, we're better than we were 5 years ago. We are on a continuous improvement journey because safety is our purpose, it is our responsibility.
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Larry Culp8:38
Thank you, John. Hopefully that gives you a sense of what our Safety Management System is really all about: policy, promotion, risk management, and assurance. And just two quick things that John touched on: a flight safety office that comes up through our chief engineers as opposed to the P&Ls, we like that separation of duties. And in addition, for every one of our engine platforms, we have a safety program management team, and they have a cross-functional mandate to make sure we keep safety front and center. John mentioned the SMS recognition that we received from the FAA, the first type and production certificate holder to be so acknowledged by the FAA, and that was back in 2017. So this is something we've been after for a long time and always will. Running alongside our SMS is our QMS, our Quality Management System, and this is really the way we operationalize quality: making sure we're making quality parts to spec every time, that we're complying with all rules and regulations, and in the spirit of Kaizen, driving continuous improvement. We never compete on safety, but making sure that our SMS and our QMS come together to keep this front and center, in combination with our lean operating system, really is the best way we know to operationalize flight safety at GE Aerospace. And through the course of the morning, I think you'll hear this theme time and time again. We'll look forward to your comments later. Key messages for today are probably no surprise here. We think we have an exceptional aerospace franchise at GE Aerospace, with exposure to all of the right market spaces and trends. Russell Farah and Mohamed will talk to you in some detail about our commercial engines and services business, where we think we are poised to grow at an accelerated rate and do so profitably and with good cash conversion going forward. And then Amy and Ricardo will come up and talk about our defense and propulsion technologies businesses that are very well positioned given likely defense spending trends over the next decade and beyond. So we really like those positions. If you look at the portfolio today, $32 billion in size, maybe not as big as GE once was, but big enough. We'll operate and report in those two segments. And as many of you know, we have an enviable position with our installed base in CES: 44,000 engines keeping many of those 900,000 passengers aloft on a daily basis. And that really is the heart of GE Aerospace. That's a $24 billion business. Amy and Ricardo look after the better part of $9 billion serving primarily defense applications, both here in the US and in Europe. Their installed base is significant in its own right: 26,000 engines in defense and propulsion technologies. Both of these businesses enjoy, I think, an enviable global footprint which sets them up for significant performance going forward. But maybe most importantly is that 70% figure: 70% of our overall aerospace revenues come in services. Many of you are very familiar with the attractive economics of the engine aftermarket. I think what we like just as much is the fact that that business model keeps us close to the product day in and day out. You heard John talk about learning; that enables a lot of learning. At the same time, we stay close to our customers on a day-in, day-out basis. We know what they need, and all of that really helps shape how we invent the future of flight and the product roadmaps of the future. Just a quick word on demand. We really are at a point in time where demand isn't our challenge. Not that we take anything for granted, but given the flying public's thirst for more travel, we've seen a very strong recovery post-pandemic, and now we're talking about not where we are versus 2019, but where we're going in the future. And we see mid- to high-single-digit growth in that regard, and that's certainly represented in the airframers' backlogs, right? A new narrowbody today probably doesn't get written for delivery until 2030 at this point. That sets us up very well given our share positions there. And while we see military spending increasing at a slightly lower rate, likely in the low single-digit range, given where we are particularly from a rotorcraft and a combat perspective, we're really excited about the growth potential that both of those businesses in DPT have. So all in all, again, demand is strong, and we think we've got quite a runway in front of us. We shared this strategic framing with many in Paris, and it really hasn't changed. We try to keep strategy simple at GE Aerospace; we think that really enables us to implement. Today, we need to make sure that we're doing all we can for our commercial and defense customers to ensure readiness because of those demands. They have to keep planes in the air. With respect to tomorrow, it's all about delivering on the ramp. And again, if we've got backlog into the 2030s, we've got a lot to do, and it's a day-to-day challenge that I'm encouraged with respect to the progress. But all the while, back to our purpose, we need to make sure we are investing in and progressing the technology building blocks that really will define the future of flight. And that applies to both our commercial and our defense business. But all the while, again, come back to where Steve started: safety and quality first. That really is the strategic framework. So how does one implement a strategy? How will we as GE Aerospace implement this strategy? It's very simple, and we're pleased to share with you in some depth today: Flight Deck. Flight Deck is the framing of the next step of our lean transformation. Flight Deck is our proprietary lean operating model. This is the way we're going to run the business. We're going to run the business with the customers' expectations front and center. And we've decided to go with Flight Deck, something we rolled out just a month ago with our senior leadership team from around the world in Dayton, to make sure that we seize the moment and we accelerate from here. The lean transformation that has been gathering momentum because we're going to need all of that positive effect as a public company. But don't take it from me. I've got a couple of colleagues here who will share their perspectives on Flight Deck.
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Narrator15:57
For more than 100 years, GE Aerospace's purpose has remained clear: we invent the future of flight, lift people up, and bring them home safely. As a standalone company, we will raise the bar, ensuring we are not only delivering for our customers, our shareholders, and the flying public, but also improving how we work at the same time. How will we do this? With GE Aerospace's proprietary lean operating model, Flight Deck, rooted in our leadership behaviors of humility, transparency, and focus. Flight Deck is our systematic approach to running our business to deliver exceptional value as measured through the eyes of our customers. Lean is not new here; we have been at it for some time. Flight Deck is about acceleration, applying lean tools to bridge from strategy to results, not only quarter to quarter, year to year, but over time so that we are delivering sustainable results. Flight Deck is the next step in GE Aerospace's lean transformation. Safety, quality, delivery, cost, in that order. The pilots and crew operate and navigate the aircraft from the flight deck. We do the same. Flight Deck for us is how we run the company, operating as one team and with one strategy. Flight Deck is how we work, how we lead, how we soar.
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Larry Culp17:30
And the instructional Flight Deck really has helped, I think, set us up not only for what comes on the 2nd of April, but to accelerate our adoption of lean and all that goes into that. But as you saw in the video, it really isn't an end unto itself; it's a means to an end. I talked about those three strategic priorities a moment ago with respect to today, tomorrow, and the future. We have objectives, and we'll talk a good bit about the financial targets later on. But in essence, think about the way we run the business first and foremost operationally from an SQDC perspective. The financials obviously matter, but all the while we want to make sure we're also playing the long game, and that's where Hoshin Kanri comes in. That's the piece of the operating model that allows us to identify in our strategic planning processes the breakthroughs that we need to strengthen our competitive advantages and then operationalize them. And Flight Deck really does, as the video suggests, sit in the middle of this so that we can not only talk strategy but deliver it, deliver it in its operational, its financial, and its Hoshin Kanri manifestations. We can go on all day, I promise I won't, but let me just take another minute to give you a little bit more detail on what Flight Deck means. There are 10 Flight Deck fundamentals that we've initiated at GE Aerospace. You see them on this slide: five for the enterprise, five at the individual level. At the enterprise level: standard work. And I know we've got a couple of lean practitioners in the audience; you understand how important that is in contrast to quarter-end heroics. Daily and visual management allows us to manage in real time. Value stream management allows us to look at the work we do, not the functions that might be the way we're organized. Our operating cadence has been a big part of what we've been up to the last several years: our weekly operating reviews, our monthly operating reviews to make sure we've got everybody together around the critical few. And I mentioned strategy-driven Hoshin; that really is the essence of Flight Deck at the enterprise level. For all of us at the individual level, our expectations of every GE Aerospace leader in the room and around the world can be boiled down to these five: continuous improvement, we want everyone to have a continuous improvement mindset, we never rest; respect for people, and it starts with listening, maybe a little more than speaking; being customer-driven, really seeing ourselves the way customers see us, not the way we see ourselves or the way we'd like to be seen; action planning, a real emphasis on action planning this year as opposed to reporting, and there is a difference, we can get into that later; and finally, problem solving, we want to be good, disciplined, scientific problem solvers, not casual finger pointers. And again, that's our expectations for ourselves as a leadership team and across the organization. And these 10 come together and they shape how we do the work that we do. We'll go to the next page. I want to go to Terre Haute, Indiana, to give you a sense of what this looks like in real time. In Terre Haute, we build the LEAP turbine center frame, which has been one of the key constraints inside of our four walls for some time, and that's been a challenge for us particularly in ramping with the LEAP. We went in, took that value stream approach, drove a lot of Kaizens, to the point where we don't have an on-time delivery issue at Terre Haute anymore. We've got model lines in place, really probably our benchmark facility from a commercial perspective. And we did that all the while not throwing bodies into the fray, but by putting our team in a position to succeed, such that on-time delivery improved and we got a 50% improvement in productivity. You can do both, and again, that's where Flight Deck comes in. But unfortunately, as we look to meet today's challenges and tomorrow's, it's not all about what happens inside of our four walls. Our supply chain has a critical role to play. Over 80% of our delivery challenges today are somewhere rooted in our supply chain. It might be a supplier to us, it might be a supplier to them. We're taking Flight Deck to Gemba, to those points of impact, to make sure we can identify constraints, get to root cause, and solve them. We may contain an issue in the short term while looking for longer-term fixes. And when you look just last year at the 25% year-over-year increase in deliveries that we had in LEAP engines, a lot of that really is a result of taking lean into the supply base to help them help us. More to do, but I like the momentum that we've got in this regard. We step back. I mentioned Hoshin Kanri being about breakthroughs and building competitive advantage. This is a business that, in my view, enjoys tremendous competitive advantages, largely because of the way this business has been run for generations. And what you see on this slide really are the platforms that have driven the better part of a century of learning. And you'll hear that word a couple of times today. Right when we think about the CFM56, a billion hours in the air, think of just this sheer data set that enables us. The GE90, the first composite fan blade enabled engine, lots of learning off these iconic platforms. And when you couple that with our R&D spend, let alone our talented engineering teams, $2 billion of R&D will be spent just this year advancing all of the various disciplines: scientific, technical, engineering, be it aerodynamics, be it in the material sciences, let alone in advanced computational modeling and testing that enable us to be in a position to bring forward what's required to invent the future of flight. And what you see on the next slide is really how this is coming together. Again, it's the engines that we're ramping currently, be it the LEAP, be it the NX, the 9X that will launch in '25, the T901 on the military side of things, let alone what will come in the next generation commercially with RISE, and Mohamed will take you through that in a good bit here in a little while, let alone with our adaptive cycle engines on the military side here in the US with respect to sixth-generation combat aircraft. So there's a lot that comes together here to sustain and create additional competitive advantages for this business as we move forward. A quick look at the financials. The guidance that we gave you back in late January with respect to 2024, that's intact. No new news today, that's a good thing. What is new on this slide is a framing for '25. Again, I spoke to the demand drivers earlier. We think in '25 we should see low double-digit growth. We should see operating profit north of $7 billion with good free cash flow conversion. And as we look ahead, we thought it would be helpful, as you consider where GE Aerospace may reside in your investment portfolios going forward, to give you a first look at 2028. Again, an outlook a few years out, but we thought that sharing this with you would just help underscore the confidence that we have, not only with respect to demand drivers but the potential for us to serve our customers and generate good returns for our investors. We think from the '25 to '28 period, we should continue to see strong growth. It'll tick down a little bit, but at a high single-digit rate. We're excited about that. We think we'll see good operating leverage in that regard, so we should see operating profit grow more rapidly at a low double-digit rate. And when you pencil that out, that's a $10 billion operating profit number for 2028. And again, we should continue to see very strong cash flow conversion in that '28 period, call it approximately 100%. So Rahul will cover this in more detail in a bit, but that gives you a little bit of a sense of how we're thinking about the business going forward. Capital allocation. I know this has been a question many of you have been keen to hear more about from us. Thank you for your patience and giving us the time and space to work this through with the board. We're excited to share this framework with you today. As you might imagine, first things first: we're going to reinvest in the business, be that in R&D, be that in CapEx. That'll be the first order, no change in that regard. But we know as we project these financials forward, we're going to have excess capital, and we think the best use of that capital is returning that to you, our current and future shareholders. So assume by way of dividends and buybacks, we will return 70 to 75% of our available free cash flow to investors. That will leave 20 to 25% for inorganic investments in the business. Now, a lot of people will, I'm sure, have questions about what does that entail. It's a meaningful amount of money, obviously. It's a small percentage of what we'll have available to us, but we'll be looking to do things that fortify our existing positions, businesses that have a logical home at GE Aerospace. We do not intend, let me be clear, to be all things to all people. We know we have an exceptional franchise, but there'll be things that we can do, not unlike the small bolt-on we did last year in Amy's business to enhance our position in hypersonics, where we can put capital to work with a strong strategic, operational, financial framing around those investments, all the while making sure that we continue to have a strong balance sheet. And I'll just close on this slide. I think this captures well the essence of GE Aerospace today and going forward. We really do have the preferred platforms, both in the narrowbody, widebody, and defense applications. We're excited about what the installed base means, not only financially but again, given the proximity, it helps us keep with our customers. We know we lead the industry, but we are continuing to drive improvements in reliability and durability. You'll hear more about our investments and breakthrough innovation. And again, Flight Deck is what enables us to bring all of that together day in and day out so that we get on a path to realize our full potential. And as we do that, I think we'll serve well our customers, our employees, and you, our investors. So with that, we're underway, and I'm pleased to hand things off to Russell Stokes.
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Russell Stokes29:11
Thank you, Larry. It's good to be with everyone today. See a lot of familiar faces out there and some new ones. Just really happy to have all of you here with us today. You heard Larry talk about our purpose statement, and for commercial engines and services, bringing people home safely means that customers want us to increasingly lift them up with our power under their wing. Keeping people safe and lifting them up reliably results in the confidence, the trust, and the support to be able to work with our customers and partners to invent the future of flight. It's those guiding principles that have created what you see behind me: a business with low double-digit revenue growth through the forecast period, 44,000 engines in our installed base, the industry's largest and youngest commercial fleet. We are the only engine OEM significantly represented in all three segments. $24 billion in revenues, 70% from services, supported by a flexible open MRO network, an amazing team focused on our customer success with safety as our first priority, always. It is so great to see people continue to take to the sky, and demand for air travel continues to be strong. In 2023, we saw departures up 18%. We do expect a post-COVID normalization of departures with mid-single-digit increases in '24 and '25. RPKs we expect to remain strong through 2028. Now, I spent a lot of time with airlines and our airframe customers, and as recently as at the Singapore Air Show, what I heard from them pretty consistently was that they continue as well to see healthy demand, that they see and have robust order books, and they really want more engines and aircraft to be able to meet their continued growth and demand projections. In 2024, and you saw Larry share a similar chart, we're focused on the things that we have to get right today, tomorrow, and in the future. Once again, committed to safety as that number one priority along with quality. Today, it's about keeping our customers flying, making sure that our customers have the right cost of ownership, the right MRO capability and support to be able to achieve their cost of ownership projections and their respective fleet plans. Tomorrow, tomorrow is making sure that we ramp these newer programs and we deliver on the performance promises that we have made around how those products are going to perform in the field. And the future, the future is about focusing on advancing technologies, the next generation set of technologies to support more sustainable propulsion offerings that all of our customers in the industry are looking for as we navigate that continuum of today, tomorrow, and the future. We see this business as one large flywheel. I want to focus you in the center of the page for a moment where you can see that for every engine in its life, we generate services revenues three and a half times the size of the original engine sale or more, depending on the engine. So let's walk around this circle for a moment, using widebody as an example. Phase one is our new engine development phase. We were really focused on the investments and the launch of these great products, the development and production of install engines and spare engines, and ultimately growing the installed base. In phase two, this is really the start of services, where we know that customers are looking for different types of product offerings. You'll hear a number of them that are looking for risk transfer products like a CSA, or time and material, or potentially material solutions depending on their own MRO capability relationships in the market. As we move to phase three, we're into shop visit two, and here we're seeing that customers are looking for a wider range of work scopes, greater flexibility around the things that they're going to be able to do with their fleet, and the incorporation of repair and use serviceable material along with new material as part of those solutions. In the last phase, mature, here's where we find that customers are looking for greater flexibility and choice of work scopes, and we work very closely with them to understand how to navigate their fleet transition plans. You can see by the page the relative contributions of each phase during the life of an engine, as revenues and profits both grow after that initial engine sale. The result of all of those efforts gives you what you see behind me: four decades of GE Aerospace product investments and innovations that are part of that flywheel. Three of four flights every day, a flight that takes off every two seconds, means that most of you in this room probably flew on one of these applications to be here or recently, and if not, I would bet that you're going to be on one pretty soon. In 2023, we celebrated the 3,000th GE90 engine, and in 2024, we will celebrate the 50th anniversary of our joint venture with Safran, CFM. Three things I hope you take away from this slide and the one before: the resiliency of this model as engines move throughout the life cycle; second, the strong position that we have with all the different airframers that you can see here on the screen; and third, the breadth of our offerings across narrowbody, widebody, and small commercial applications. So let's go a little deeper into some of those, and we'll start with narrowbody. Look at the logos of the customers who have recently chosen our narrowbody offering, and we just added American Airlines this week. We have achieved a 60% life-of-program win rate on the A320 and enjoy being sole source on the 737 Max. All of those wins feed the front end of that flywheel. And CFM56 continues to be strong as well, with 19,000 engines in service. CFM56 continues to outperform expectations, with customers investing in more shop visits to keep those fleets flying to support their demand. As you can see, departures remain strong, with 400 fewer retirements than we forecasted just a year ago, leading to more shop visits than what we forecasted just a year ago. As you can see, shop visits for CFM56 will peak in the 2025 timeframe, but they'll remain strong through 2028 and beyond, as once again, 45% of this fleet has yet to see its very first shop visit. Now, while CFM56 remains bright, LEAP's best days are just getting started. Think back to all those logos we had on the previous slide. Those wins continue to fuel the mid-single-digit growth in installed base and the low double-digit expected services revenues that you see on the screen. These factors ultimately lead to substantial operating profit growth through 2028 and beyond. Now, with this growth and demand, there's a need to be able to manage this substantial ramp in production. In 2024, we expect to grow deliveries by 20 to 25%, climbing even higher in 2025 and 2026. The supply chain remains a challenge, but I am absolutely proud of the work and the efforts that our teams put in each and every day, problem solving, working through constraints side by side with our suppliers and our partners to be able to output every engine we can, all leveraging Flight Deck. Now, more new units being output means we're going to need to have more capacity for shop visits, and our LEAP fleet, as you can see, is going to double in size as we get towards the end of the decade. We're working very closely with our partner Safran and with our external MRO partners as well to ensure that we have all the capacity we need at the right time to keep our customers flying and meet their needs and expectations. Now, while customers definitely want to make sure that we have capacity to do their shop visits when those engines come off wing, they more importantly want to make sure that we keep that engine under wing operating as long as possible, more frankly up in the sky helping them to earn the revenues that they're looking for. And we do that with a focus on product reliability and durability. LEAP reliability and durability is performing as well as CFM56 or better at similar points in their lives, and we are continuing to invest to ensure that it continues. We are introducing targeted component upgrades into the LEAP 1A fleet that will go into production in 2024, and we'll do the same for the LEAP 1B fleet into production in 2025. Our team has undergone extensive testing of these solutions to make sure that we are absolutely ready to be able to perform as expected in hot and harsh environments, and Mohamed's going to come up in a bit and he'll share more detail with you on exactly how we've gone about that. So I hope you see by this section why we're so excited by our narrowbody portfolio. You can tell how excited I am about widebody, that's what's coming next. And I thought that we take an opportunity to move to widebody, and instead of you continuing to listen to me talk, I thought it might actually be good for you to hear from one of our customers, Roberto Alvo, on why LATAM has made the decision to move to the GEnx for their widebody fleet.
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Roberto Alvo41:25
For me and for the whole of LATAM, this is a decades-long relationship already with GE, and one that we are really proud of having, and where I think that the trust and the working together feels really good all the time. Really proud and happy to be partnering with you. Being the most important airline in South America also having the most important engine supplier, I think it's an important thing for us as well. We love the 787, to be honest, and we love the idea of having it powered with the GEnx engines. You have a great product there, one that is again from our perspective a very reliable, very efficient product, and together with the support that we have always seen from GE, it's a pleasure and a source of pride to be able to have GEnx power 787s from 2025 onwards. And I don't think that there's a successful company in the world that doesn't have a great product behind it, and that does not only mean the hardware, it means the hardware itself but also the support, the relationship, the understanding, and the trust. And I believe you've done a tremendous job over the decades. We clearly seen it and we've experienced it. And I just give you the advice to keep on doing what you've been doing: excelling in what you do, bringing great products to the market, making sure that we understand what you mean and what you try to do with your products, making sure that you understand how important or which are the areas where we need you and in which ways, and making sure that again on this decades-long marriage, which means operating an engine for an airline, is one where you always look at the long term as a goal and work the short term making sure that they in and out, our passengers, which at the end of the day are who matter to us, you know, can rely on the fact that we will operate always as dependably as we can when we have your products working for us.
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Russell Stokes43:32
We are really grateful for Roberto and the LATAM team's confidence in the GEnx engine. And by now, you've heard other announcements as well, be it the 200 GE9X order by Emirates announced at the Dubai Air Show for both engines and services, or most recently Thai Airways announcing the award of 90 GEnx engines at the Singapore Air Show. These wins continue to contribute to a life-of-program 70% win rate on GEnx and a 60% win rate on GE9X versus the A350-1000. Again, that leads to this slide that once again is another reminder of how these wins feed our installed base, which will be up low single digits, and service growth up mid single digits. So like we did on narrowbody, let's go into widebody in a little more detail. And why don't we start with the GEnx. In 2023, we had a 99% win rate of firm orders greater than 400 engines. Let me say that one more time: in 2023, a 99% win rate of firm orders on the GEnx on the 787 with greater than 400 engines ordered. So much credit goes to just an amazing team that has worked and focused on delivering to the time on wing that our customers were expecting and that the market has been looking for, delivering a world-class product that you could see significant adoption around. The GEnx installed base will grow low double digits through 2028 and will feed services growth at mid single digits over the same time horizon. And there's more to come. So now let's move to a product earlier in its life cycle, the GE9X. We couldn't be more pleased with the enthusiastic adoption of the GE9X. We already have 900 engines yet to deliver, and we are using Flight Deck to come down the engine cost curve with a strong pipeline of actions underway. We are confident that this program, given all those actions and the benefits of volume, will be profitable by the early 2030s. Now, while we've talked about narrowbody in the same way that we've talked about it as these programs ramp, we still see long life and other programs in our widebody fleet like CF6 and GE90. On the left, CF6 entered into service in 1971, it continues to be a workhorse of the industry, especially for freight operators. And on the right, you can see the demand for GE90 continues, meaning more shop visit growth as 75% of this fleet has not seen shop visit two. Both of these fleets are beloved by their operators due to their 99.97% dispatch reliability. So we've talked a good deal today about the things we're doing today, the things we're doing tomorrow. What about the future? The future is going to be about RISE, and it will be our most ambitious program that we've had yet. This revolutionary open fan technology that you see on the screen behind me addresses customers' needs for greater fuel efficiency and lower emissions, leveraging advancements in combustion and propulsion technologies, achieving a 20% fuel burn advantage or benefit over the LEAP engine. So this morning, we've talked a good deal about all the 'whats' we're going to do, all the things that we need to get accomplished. But I want to make sure we're sharing with you how we're going to get it done, and the how is Flight Deck. As you've heard Larry say earlier, safety, quality, delivery, cost are absolutely foundational in all we do at GE Aerospace, and it's underpinned by our proprietary operating system. You can see behind me some impressive achievements in 2023, but I'd like to bring Farah Bores, who runs our assembly and test MRO organization, up to be able to share with you more about the journey that we've been on. But first, I'd like to take you to one of our new make shops, Rutland, so that you can get a feel for Flight Deck in action.
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Robert Well48:49
Hi, my name is Robert Well and I am a manufacturing operations leader in Rutland. What I share with you today is an example of how our team has focused in on improvement of the quality of our low pressure turbine blades. These parts go in the GEnx engine and that powers the 787 Dreamliner. Our customer demand is increasing in the next few years. The team here is focused on eliminating waste to be able to support the ramp. In the beginning, we had ergonomic risk, we had excessive rework, and we were averaging 64 non-conformances for every hundred parts. This resulted in lots of no-value-added work for the team. Going to Gemba, the team created a value stream map of our current process to capture the elements of waste. We matched the information up against problems that were hindering daily progress. Today, we will highlight one of the areas for you. We started closest to the customer with a 3P event. We changed the layout of the area to connect flow, reduce waste, and better utilize our people. During the event, we moved 17 machines and reduced inventory by 63%. This enabled us to connect flow through multiple operations and better aligned to customer needs. This Kaizen has drastically changed the mindset of our team and improved the way we run our business. As part of the model line journey, our team was focused on creating a zero-defect culture by taking action to stop the line when non-conformances were found. All of our operators are empowered to stop production when they find a non-conformance. Now for the results: we identified, reduced, and eliminated high ergonomic risks in the area. We improved our problem-solving rigor to expose quality issues. We reduced our lead time from 136 days to 44 days, a 68% improvement. We also had an outstanding 24% productivity gain in 2023. In the end, it's all about running our business better for our customers and for our people. It is exciting and inspiring to see what our teams have accomplished so far, and we're not done yet. We can feel the progress, and I am very proud to be part of this team.
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Farah Bores51:25
Roberta is a tough act to follow. What an incredible job by our supply chain friends in Rutland. Good morning, my name is Farah Bores, and as Russell said, I lead the assembly, test, and maintenance, repair, and overhaul operations within commercial engines. Before I get started on how we're using Flight Deck to drive actions within ATM, I want to spend a few seconds describing where we sit in the enterprise value stream for context. Our supply chain partners own the industrialized to manufacture phase of the value stream. Once material is delivered, my team owns the assemble to deliver and the receive to service portions of the value stream. What that means is that we are typically the last stop before our customer receives our product. You heard Larry say that we're very customer focused. Our customers told us they want us to be more reliable and credible with our commitments, and we need to make improvements in our on-time delivery. These are areas of both focus and opportunity for us. So with that, I would like to talk about what we're doing inside my organization to drive improvements. I'd like to talk about Durham, North Carolina. In Durham, we had two major milestones last year. They celebrated their 30th anniversary, which was a big deal. I had the opportunity to go down to the site and celebrate with them. What a great history, evolution, and growth that team has seen. They represent the largest engine assembly shop in the commercial engines network. What was really impactful about that event was hearing from customers that day how impactful that relationship is with Durham assembly. The culture there is focused on continuous improvement. And the second major milestone that team had last year was the launch of the CF34-10 model line. Leading up to the launch, the team spent a lot of time working through the elements of the model line and the elements of the Flight Deck model. We developed a value stream map to really understand our current state. We cast a vision on what we wanted the future state to look like with a target of 10 days from the receipt of material to the time an engine came off the assembly line, and we wanted to deliver that with stability and give our customers confidence and credibility in the commitments we were making. The team got to work through a series of eight Kaizen events. They developed standard work. They understood what we needed to do every single day, every single shift, every single hour to be successful. From there, we balanced the line, making sure that we could flow and making sure that every 10 days an engine came off our line. What was really powerful when I had the opportunity to go to Gemba was to see daily management as we described in Flight Deck. Sustainment has happened every day. And so to understand what makes that team successful and making sure everyone's aligned on the actions for the day was really impactful. But more importantly, how are we problem solving at the point of impact and how are we doing that in real time? That's really the game changer. So while our results speak for themselves, we talk about SQDC. Since we launched the model line, that line has had zero injuries from a safety perspective. From a quality perspective, we've reduced escapes and customer disruptions by 65%. Lead time is down 75%, so not only did we meet the 10-day ambitious target, we slightly beat it. And labor productivity is up 30%. Before we leave this chart, most impactful, if you look at the line chart on the top left, the stability with which we are delivering the outcome is really impactful for our customers. I couldn't be prouder of the Durham team. This year, we're going to scale and we're going to do it across all of the programs you see listed, including LEAP and CFM56. That work is underway, and I'm excited to come back and share with you the progress that team is making. I'd like to change gears now and talk about the MRO space and the transformation we're driving there. Look, we shared similar numbers with you in Paris. We've got to make a 30 to 50-day improvement in our turnaround time to satisfy our customers and to achieve the targets we want. That's a 30% improvement. As we think about how we're going to do that, it's really going to come down to what we call our gate two process. Our gate two is where we accumulate material and we drive repair turnaround time to make sure that material is available for us to launch engines and to assembly and deliver for our customers. As we think about how we're going to approach that, we've actually got a Hoshin Kanri effort on strategic breakthroughs to change how we manage material and how we think about things in the aftermarket for material availability. I want to talk about what we're doing in that regard with our repair turnaround time efforts at our Singapore site. Singapore is our largest component repair shop in ATM. We started with a lean model line focus on the stage two nozzle for CFM56. If you had a chance to visit the Singapore site before the transformation, the main building is four stories of production. If you followed that stage two nozzle, you would have traveled across three of those stories, traveled 1.3 miles, and spent almost 40 days in the shop. Today, that team has laid out a lean model line combining almost 95% of the operations in the cell, moved lots of equipment, and running an 11-minute takt time. Incredible results. Most impactful, lean affords us the opportunity to do more lean. We freed up an entire floor in the main building, a footprint, so now that is going to be the home for our next lean model line. While the results speak for themselves, we've reduced injuries 40% from a safety perspective, customer disruptions 50% from a quality perspective, we've improved turnaround time 20%, labor productivity 20%, and as I shared, we freed up a third of the footprint that this line was taking previously. Really exciting. But I don't want to leave this stage making it sound easy or making you think that the work is done on LEAP alone. We've identified in the bill of materials so many parts, 1,400 parts, that need the medicine that we've applied here through our strategic efforts and our breakthrough efforts in Hoshin. We've got a really good strategy and clear line of sight on how we order material and change some of our material management processes on two-thirds of those, but still more work to do, and the teams are cross-functionally working on the action plans to drive the impact we expect. So with that, what I will say is this: our team, we've got the right team on the field. Our teams are committed, they've got fire in their belly. Flight Deck is providing us the right operating model to get the work done. And while we've got a lot of work to do and it's going to be a heavy lift, I've been with GE for 20 years and I can confidently tell you that our best days are yet to come. And with that, I'd like to hand it back to Russell.
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Russell Stokes59:10
Thank you. So as Farah said, what she just showed you is not easy, but it's possible when you have a team as strong as the one that we've been able to put together. And we're fortunate to have Farah and her team and so many others committed to the power of Flight Deck. Lead time improvement, output velocity, turnaround times, capacity, productivity, all of those I hope you were able to take away in terms of the power of what we're able to accomplish when we have a team that's committed and focused on Flight Deck. And there's more opportunities just like the ones that Farah shared. I had the opportunity to actually be in that Singapore site to see a site where an entire floor is empty and think about the capital-efficient way we can add capacity to be able to meet all of these output needs that we have. It was just something to behold. With that, I'd like to move to our next segment and bring up Mohamed Ali to really be able to share the things that we're doing as well, embracing Flight Deck and the power to advance and really impact SQDC and the future of flight. Mohamed.
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Mohamed Ali1:00:27
Thank you, Russell. That was great. And good morning everybody. Here's my plan for today. First, we'll talk about keeping the fleet flying safely today. Then we'll give you an update about the LEAP durability, I'm sure a lot of you are expecting that. Then we'll talk about 9X, and then we'll finish with the future of flight. Sounds like a good plan. I want to start with our safety philosophy today because we believe that bringing them home safely is what earns us the right to lift people up, which in turn earns us the right to inventing the future of flight. And if the engineering team were sitting here, they will finish the sentence for me: we find problems, and they would say before problems find us. We find problems before problems find us, because when they find us, they are painful and expensive. And that's why we have institutionalized enhanced inspection of our safety critical parts in all of our new make shops and in our MRO network as well. Moving to tomorrow, we have a term we call it Engineering 360. Obviously, the engineering team is involved in the design of the parts in the engine, but we don't stop there. We are working and partnering with the supply chain team and the entire supply chain, partnering to solve problems. And we also are with customers, understanding their pain points and continuous improvement of durability and reliability of our engines and services to them. And also partnering with Farah's team, with the MRO network team, in order to debottleneck turnaround time and deliver engines for our customers. And I want to give you an example of that. Late last year, what was limiting LEAP production was the high pressure turbine blade coating process. The engineering team went there to that supplier. I went there also myself. We spent the time to understand the problem. It turns out that the furnace they are using is very similar to furnaces we are using for the manufacturing of our Ceramic Matrix Composites. We applied the right expertise right at the impact point and partnered with that supplier to solve the problem, and it's no longer a constraint within a month. This enables us to approach the RISE design. RISE, revolutionary innovations for sustainable engines, not only for sustainability, not only for the durability and the reliability that our customers are expecting, but also for producibility. And just building on the same example I told you about, we're approaching the high pressure turbine design of that new technology for the future, obviously with sustainability goals, with fuel burn improvements, obviously with durability and reliability, but also with producibility. And we are cutting out about half of the manufacturing process of that high pressure turbine technology to make it more producible. This is the virtuous cycle that we talk about. This is the relentless continuous improvement that's in our Flight Deck. And I want to talk safety first and go back to the safety culture. And while Safety Management System, SMS, and Quality Management System, QMS, and the associated processes are extremely important, the bedrock of safety is our culture. And there are four tenets to that culture that I want to talk to you about. First, be where the action is, at the point of impact problem solving. There are no walls between the engineering team and the supply chain team and the suppliers of the safety critical parts. Second is transparency. It's for nothing if you discover problems and you cannot talk about them. You will not be able to solve them. And that's why over many decades, we have learned and institutionalized that no single person can make a safety decision. No single person can make a safety decision. It's always a team work, it's always a cross-functional team making the safety calls. The third is proactivity. Don't wait for problems to find us. We find problems. And now I'm expecting you to respond back saying we find problems before they find us. And fourth is we expect zero defects. We demand zero defects. We demand that from everybody, but we never assume perfection. These are the four tenets of our safety culture. But finally, I want to say we do not compete on safety. We happily share that knowledge with everybody in the industry because we humbly believe that it is our responsibility to lead the industry in that continuous improvement journey. This is how it works, and I want to take you through a real world example of how we are applying these four tenets. And it starts with the design first. While we are designing the part and the engine, we anticipate there will be defects. We anticipate there will be some damage, and we design for a specific size of damage. And even with that damage present or that defect present, we designed so that the part and the engine will safely finish its whole life in its entirety. And we call that our damage tolerant design philosophy. Second, we have implemented the state-of-the-art enhanced ultrasonic inspection in our new make shops. As a matter of fact, we have had enhanced ultrasonic inspection of safety critical powder parts since their inception in the 1990s. And in 2018, as John talked about, we expanded that and extended it to be implemented in our MRO shops. None of that is mandated by the regulations. None of that is mandated by regulation. All of that is mandated by us because it's consistent with our philosophy to seek out. And we are not stopping there. We are developing advanced module level in-engine inspection, which means that you don't have to disassemble the module to apply that enhanced inspection. Why is that important? It's important because it's simpler for the humans at the MRO shops to do, and here simpler means safer. And in 2023, actually in early 2023, we developed a program we call it Partnership for Safety and Quality, in which we work with our safety critical parts suppliers. And in that program, we teach them the importance of what they do. This is part of the Safety Management System, SMS, we call that safety promotion. We also have developed with them joint quality improvement metrics, KPIs, and they have continuous improvement in them. And every quarter, we sit with the CEO and the lead leadership team of those suppliers and we understand the status and work together on problem solving toward that continuous improvement. We are not perfect, and we don't assume to be so. That is our safety culture. Let's now talk LEAP and LEAP durability roadmap in particular. We told you before that we have a handful of parts that are limiting the LEAP durability, particularly in the Middle East and in the hot and harsh environment. We already introduced the fix to the shroud and all new engines since 2018 have that fix and they're working really well. We already introduced the fix to the radial drive shaft since 2019 and all new engines since then have that fix and they're working really well. And last year, we stood in front of you and we told you we'll introduce the fuel nozzle coking fix in 2024. And I'm proud to stand here in front of you and say that the first production engine with that fix is already at Airbus, ready to go. And also last year, we told you we'll introduce the fix to the high pressure turbine blade in 2024, and the first production set is ready in the shop and we are on track for 2024 introduction for LEAP 1A. Now let's talk about what that means. So for the first time for me in public to state that we expect production engines at the end of this year to be at the mature time on wing for LEAP 1A, and 1B will follow in 2025. And I always get this question: why do I feel confident? And the reason I feel confident is because it's not on the back of a theory, it's not on the back of analysis, and certainly it's not on the back of wishful thinking. It's because we have done real testing. So now moving to the right hand side of this page, we tested the current configuration in the actual dust environment. We simulated the actual environment and have simulated the actual failure mode. And the wrinkles you see on the first picture, they are the precursor for the failure mode that our customers see in the Middle East. We tested the new design, same environment, same dust, and that's the second picture, and the failure mode is gone. And it's gone at more than two times the number of cycles, and we could have gone actually longer. We actually had to remove the LEAP 1A engine so we can put the LEAP 1B engine on the test stand. And I'm happy to tell you that that LEAP 1B engine is actually performing really well in that test. This is what we call turn on and turn off. Turn on the problem in an actual condition and turn it off in testing with the new design. And to be honest with you, if it's not turn on and turn off, I will not believe the outcomes. And this is why we feel confident. Applying the exact same playbook to GE9X. And as a reminder, GE9X is already a certified engine. Same playbook, learned from prior engine generations. It's the culture of relentless continuous improvement, and it works. Every engine came to have a better durability at entry into service than the prior engine, and GE9X will be no exception to that. As a matter of fact, the difference is we are learning from the previous engines, accelerating the testing, and we're proud to say that the first blade improvement is already complete and we are now heading into the second dust test ahead of entry into service. This is coming down the learning curve, meeting our customer expectations faster, early maturation faster, which translates into less risk, more confidence, and less cost. This positions the GE9X to succeed the iconic GE90 that we all came to love. So we have lifted people up, we brought them home safely, and now we earned the right to invent the future of flight. And I get asked this question a lot. Many ask me why open fan, and the answer is very simple. And Russell talked about customer expectations for more than 20% fuel burn improvements. Not just customers, the industry, the planet expects that we are doing more. 20% or more of fuel burn improvements. And that 20% of fuel burn improvement from the engine is very hard to achieve. Actually, it's practically impossible to achieve that 20% fuel burn improvement without the open fan. And the reason is physics. It's actually very simple. So over the past many decades since the invention of jet engines, the engines get bigger, I think you're all familiar with that, and that's the best way to achieve the fuel burn improvement. The fan gets bigger, more air is going through that fan, it's the most economical way of generating that fuel burn improvement. However, what's also happening is the nacelle is becoming bigger, which is increasing the drag, and that has diminishing returns. And now we are very close to an inflection point in which significant increases in the fan diameter will generate so much drag in the nacelle around it that will eat out all of the benefits coming from that fan diameter increase. That is the inflection point that we are very close to it. And that's why a ducted engine, which is one that has a nacelle around it, has less than half the fuel burn improvements that can come from an open fan. So we said, let's go through this thought experiment. Can we actually take that ducted engine and run this hypothetical thought experiment to see if we can make it match the 20% fuel burn improvement that the open fan can achieve? And because you are now running out of the lever to substantially increase the fan diameter because of the drag in the nacelle that I talked to you about, then you are left with increasing the core temperature or increasing the core complexity. We said okay, well let's try to increase the core temperature. And the answer to that is that temperature in that core will be about half the temperature of the Sun's surface. There's no material on Earth that can sustain that, let alone the durability, reliability, and complexity challenges that will come with that. That's the beauty of open fan. It's 20% fuel burn improvement without any of these drawbacks. Less risk, higher durability, higher reliability, which is what our customers expect, because of the simplicity. And on the CFM RISE program, we're working with our partner Safran, and we are at a stage of program in which we are making real testing. We're doing real testing on real hardware and making real progress. And I'm going to focus on four components, critical components of the CFM RISE program. First, the high pressure turbine. We use the world's fastest supercomputer to design that next generation of high pressure turbine. We took that design, put it already in a full engine test, and not only it proved to achieve significant fuel burn improvement, but it proved also to be more durable. And by the way, that technology can also be applied to today's engine architecture. Moving to hybrid electric, we were the first company to be testing hybrid electric megawatt class system at altitude at 45,000 feet. And we today have an engine at our test facility in Peebles, Ohio, that will be reconfigured later this year to test megawatt class hybrid electric power extraction. And we are thrilled and humbled and proud to be collaborating with NASA and Boeing in our hybrid electric program. And we have tested also noise, working with Airbus, and we have showed and demonstrated that the open fan technology has the capability to achieve lower noise than today's LEAP. Think about that: lower noise than today's LEAP. And a lot of that is the advantage of the supercomputing capability that I talked to you about. And as we speak, we are running an engine testing to validate our fan blade technology, and there is an ongoing wind tunnel testing to optimize the installation of this configuration on the aircraft. Real testing, real hardware, making real progress. This is what the team stands for. We find safety issues and fix them before they find us. We do what we say we will do, and we earn the right to invent the future of flight. This is what makes me proud to stand here to represent the GE Aerospace team and the GE Aerospace engineering team. With that, thank you very much, and Russell, I hand it back to you.
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Russell Stokes1:19:31
I hope you can feel as well from that section just why I'm so happy to have Mohamed and our engineering and product management teams with us on this journey. He talked through the things that the technology teams are really doing around SQDC, the things we're doing to keep the flying public safe, the things we're doing to make sure that we can do the right inspections and make sure that for delivering high-quality hardware, the unlocks that he's demonstrated on delivery working directly with suppliers and getting all those things right boils down to being able to do things more efficiently and really being able to get after that cost. And then he just can't miss all the great things that he said, those exciting things that are coming around the future of flight and the innovation that they're bringing forward. So let me try to put a bow on this morning on our section and talk a bit about the financial outcomes. With everything that you've heard us talk about, we see a strong year of top-line growth and increased profit ahead. In 2024, we're estimating mid- to high-teens growth in revenues and 20 to 25% increase in deliveries on the LEAP engine, with additional strength in both services and engine. We expect profits to increase to a range of $6 to $6.3 billion as we manage the mix pressure of original equipment, the investments that we need to make in the GE9X, and additional investments in the RISE technologies that are critical to the long-term success of this business. Beyond those mid-teen growth that you see in the year, we see low double-digit to mid-teen growth in 2025, stabilizing to high single digits by 2028, driven by LEAP, GEnx, and GE9X. Original equipment revenues will be higher than services growth as departures normalize and the installed base fuels services revenue. Ultimately, LEAP revenue will exceed CFM56 by 2026, with commercial engines and services profits growing faster than revenue through 2028, as once again that flywheel continues to turn and turn and turn. I want to close by thanking you all once again for being here and taking the time with us this morning, and hope I can leave you with just a couple key takeaways. First, the significant tailwinds that we continue to see in the market that drive growth and departures well above GDP. Second, the strength of the portfolio that we've talked about and shown to be able to meet the needs of our customers while growing revenues, margins, and free cash flows consistently. And third, the absolute power of Flight Deck to deliver differentiated outcomes through safety, quality, delivery, and focus on cost. Once again, thank you for your time, and I'll bring Steve up now for Q&A.