By Jon Sindreu

2024 was the year in which jet-engine makers infamously made tons of money from their products being returned to the shop for early repairs. 2025 may not be that different.

On Thursday, shares in GE Aerospace jumped after the Cincinnati-based manufacturer reported quarterly earnings per share that were 27% greater than Wall Street's forecasts. Operating profit at its engine division was particularly impressive, surging 44% year-over-year even as repair-shop visits fell by volume.

This is because airlines are desperate to pay more for them, as well as parts, as a result of aircraft production delays at Boeing and Airbus, supply-chain shortages and the durability problems that have ailed new engine models.

The jet-engine business is peculiar: Manufacturers often sell the engines at a loss, and later recoup the money in the so-called aftermarket of repairs and part sales. So a lack of new, working engines is actually a short-term positive for firms such as GE. It explains why its share price has doubled in a year, even as the entire aviation industry scrambled to get planes in the air.

However, it has also created a worry: Soon, GE will start ramping up shipments of two state-of-the-art turbofan engines, the LEAP and the GE9X. Higher deliveries secure future revenue streams but dent present profit, raising the possibility that investors have gotten too optimistic.

Thursday's results quell some of these concerns: Executives suggested that operating margins in the engine arm could be above 25% in 2025, only a small decrease from 2024.

One reason is that full normalization of the engine aftermarket may be years away: A recent RBC survey suggests spending in this area will slow this year but will still grow.

Another reason is that the LEAP itself, which GE makes with France's Safran, is doing better than initially thought, despite delivery delays. This isn't just because of higher shop visits and part sales, but also because customers have been paying more for it. In 2026, it is expected to no longer sell at a loss.

Engine makers could travel far before they have to land.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.

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(END) Dow Jones Newswires

January 23, 2025 10:26 ET (15:26 GMT)

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