Good day, ladies and gentlemen, and welcome to the GE Aerospace Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Blaire Shoor, Head of Investor Relations.

Thanks, Liz. Welcome to GE Aerospace's fourth quarter and full-year 2024 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Rahul Ghai. Many of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and website, those elements may change as the world changes. Additionally, Larry and Rahul, consistent with prior quarters, will speak to total company and corporate financial results and guidance today on a non-GAAP basis. Now, over to Larry.

Blaire, thank you. And good morning, everyone. Head of Investor Relations - that has a nice ring to it, Blaire. I hope everybody saw our announcement last week relative to Blaire's promotion. She's excited. We're excited. 2024 was a year for the history books at GE Aerospace. In April, we became a standalone public company, the culmination of GE's multi-year transformation. Nothing has been more front and center than our purpose: inventing the future of flight, lifting people up, and bringing them home safely. Those last four words remain our top priority, with nearly 1 million passengers in flight at this very moment with our technology underwing. We launched FLIGHT DECK, our proprietary lean operating model, to better serve our customers through a relentless focus on safety, quality, delivery, and cost in that order. Seeing our teams in action throughout the year with FLIGHT DECK from Malaysia to Wales to Asheville and elsewhere truly was energizing. Commercial momentum continued as we signed several key service agreements and received orders for more than 4,600 commercial and defense engines. In narrow-bodies, this included American Airlines' commitment for 85 new Boeing 737 MAX jets powered by our LEAP-1B. In wide-bodies, we were honored to add a new GEnx customer, British Airways. And in defense, we received an order from the Polish Armed Forces for 210 T700 engines to power the 96 Boeing AH-64E Apache Guardian helicopters. To close the year, we received certification of the LEAP-1A HPT durability kit. Combined with the three prior durability enhancements that are performing well in the field, it's designed to increase LEAP time on wing by more than two-fold from current levels and achieve parity with the CFM56's performance today. Just this week, in fact, we shipped our first retrofit engines to customers with the new hardware. It's also easier to produce, supporting our output trajectory going forward. At the same time, we've advanced significant technology milestones that will propel GE Aerospace into the future. Our RISE program with CFM completed more than 250 tests on our way to developing a full-scale open-fan engine. We recently announced that in collaboration with Boeing, NASA, and the Oak Ridge National Laboratory, we will model the integration of an open-fan engine design on an aircraft wing. Our defense team successfully demonstrated a hybrid electric propulsion system rated at 1 megawatt with the U.S. Army. This represents a meaningful increase in power generation, enabling us to advance hybrid electric propulsion applications. But perhaps more important than what we accomplished in 2024 is how we did it. And my thanks this morning go out to our entire team for their unwavering commitment to delivering for our customers. GE Aerospace delivered a standout year financially with revenue up double digits, profit up $1.7 billion, and free cash flow up $1.3 billion. We finished strong, surpassing our most recent guidance. In the fourth quarter, robust demand continued. Orders were up 46%, and revenue grew 16%, with double-digit growth in services and equipment for both orders and revenue. Profit was up nearly 50%, and EPS more than doubled. Free cash flow was up over 20%, with conversion above 100%. At Commercial Engines & Services, our fourth quarter orders were up 50%, revenue was up 19%, and profit increased 44% while deliveries progressed. For the full year, demand remained robust, with services orders up 30%, total revenue up double digits, and profit up 25% to $7.1 billion. In Defense & Propulsion Technologies, fourth quarter orders were up 22%, and defense units nearly doubled sequentially. For the full year, revenue was up 6% and profit increased 17% to $1.1 billion. Looking ahead to 2025, we're maintaining this momentum as we aim to deliver another year of substantial revenue, EPS, and cash growth. We expect departures growth of mid-single digits and increased military spending. This supports solid low double-digit revenue growth, including growth in CES and DPT. We expect profit in the range of $7.8 billion to $8.2 billion. This, combined with a lower share count, will translate to EPS in the range of $5.10 to $5.45, up 15% at the midpoint. For free cash flow, we expect to generate $6.3 billion to $6.8 billion, with conversion remaining robust above 100%. Given the strength of our balance sheet, we're increasing our share repurchases to $7 billion and planning to raise our dividend by 30%, subject, of course, to Board approval. Overall, GE Aerospace is, I believe, an exceptional franchise with a tremendous financial profile. Stepping back, between 2023 and 2025, taking the midpoint of our guidance, we expect to grow profit $2.5 billion and free cash flow nearly $2 billion over this two-year period. Today, we're focused on keeping our customers' fleets flying and delivering on our new engine backlog. Our team is using FLIGHT DECK to tackle supply chain constraints head-on. From the first half to the second half of 2024, we delivered meaningful improvement as material inputs increased 26% across our priority supplier sites. This, in turn, supported CES services revenue growth of 17% and engine unit growth of 18%, with defense and commercial both up double digits, including LEAP up 12%. We're encouraged by our progress more recently in the fourth quarter, where CES services revenue increased 12% year over year, supported by expanded shop visit workscope and spare parts growth. But this was lighter than we expected due to lower internal shop visit volume, given material constraints. Total engine units improved up 3%, with defense up 20%. But commercial was roughly flat, with LEAP down 5%. We'll need to drive further sustainable improvements to meet '25's demand, and this is exactly where FLIGHT DECK is so important. Earlier last year, our priority suppliers shipped only half of their committed targets to us. Today, they're shipping over 90% of the committed volume. At a recent joint Kaizen with a priority supplier, we focused on eliminating waste, achieving a 50% increase in output. Throughout 2024, we deployed over 550 of our supply chain and engineering resources into that same supply base, demonstrating that we're at our best when we're operating as one team. Building off this momentum, we're bringing together our engineering and supply chain teams into one new organization, Technology & Operations, which will be led by Mohamed Ali. With shared accountability across the full value chain, this cross-functional team will enable faster problem solving to help improve deliveries. These actions, combined with our close alignment on demand schedules, will enable higher material inputs in 2025 and, importantly, beyond. Finally, we've expanded LEAP aftermarket capacity by approximately 40% in 2024. This will support the growing fleet of 3,300 LEAP-powered aircraft with now 10,000 engines in backlog. Here's how: First, we're eliminating waste and reducing turnaround time using FLIGHT DECK. For example, our on-wing support team redesigned the LEAP engine flow, increasing output by 50% for the year. This contributed to LEAP internal shop visit growth of more than 20% in the fourth quarter alone. Second, we're investing more than $1 billion in our internal MRO facilities over the next five years. We're growing our repair technologies, which will help lower the cost of ownership and provide faster turnaround times. Our recently opened Services Technology Acceleration Center here in Ohio will be a key enabler in deploying repairs across our global MRO network. Finally, we're strengthening our LEAP third-party network. Last year, five premier MROs completed around 10% of total LEAP shop visits. This is critical experience for them as their volume increases further in 2025. Overall, we're entering 2025 with a stronger foundation to service and deliver our engines faster with the highest possible levels of safety and quality. Demand for our services and products remains robust, highlighted by orders up 46% in the fourth quarter. At CES and narrow-bodies, El Al Israeli Airlines confirmed its commitment for 20 737 MAXs with LEAP-1B engines underwing. We've also extended service contracts, including a 10-year engine maintenance agreement with flydubai for their CFM56-powered aircraft. Notably, the Airbus 321XLR, powered by our LEAP-1A engines, completed its inaugural commercial long-haul flight. Our engines are providing airlines with greater route flexibility and overall operational efficiency. In wide-bodies, Royal Jordanian announced an order for 18 GEnx-1Bs, plus spares to power their expanded Boeing 787-9 fleet. China Airlines also announced an agreement for 10 Boeing 777-9s with the GE9X underwing. In DPT, we're building on our leading defense programs. We received orders under a contract with the U.S. Army valued up to $1.1 billion for the continued production of T700 engines through 2029. The new T700s will power the Sikorsky H-60, the Bell H-1, and the Boeing AH-64 platforms. In addition to expanding our extensive install base, we're enhancing our customer solutions. We signed an agreement to acquire Northstar Aerospace, a leading manufacturer of mission-critical gears and shafts. Northstar will be highly complementary to our Avio Aero business, providing a U.S.-based presence in this market and adding new programs and capabilities to deliver complex flight-critical parts. Stepping back, I couldn't be prouder about what we're building at GE Aerospace as we advance flight for today, tomorrow, and the future.

Thank you, Larry. Good morning, everyone. We closed out 2024 with another strong quarter. Orders were up 46%, with significant demand for both services and equipment. Revenue was up 16%, with growth in CES and DPT. Profit was $2 billion, up 49%, driven by services volume, favorable mix, and price. Margins were up 450 basis points to 20.1%. EPS of $1.32 more than doubled from profit growth and a reduced tax rate. Free cash flow was $1.5 billion, up 21% from higher earnings. Working capital was a source, primarily from long-term service contract billings. While accounts receivables increased, day sales outstanding were down five days year over year. Given the ongoing material availability challenges, inventory increased, although at a lower rate than prior quarters. For the year, orders were up 32%, including services orders up 30%. Revenue was up 10%, with growth in both segments. Profit increased 30% to $7.3 billion, with margins expanding 330 basis points to 20.7%, driven by commercial services. EPS increased 56% to $4.60 from significant profit growth, a lower tax rate, and the absence of preferred dividends. Free cash flow was up almost 30% to $6.1 billion, with conversion over 120%. Taken together, we delivered significant growth across all key metrics, both in the quarter and the year. Looking closer at our businesses, starting with CES. In the quarter, orders were up 50%, as services demand remained robust while equipment accelerated. Our recent wins build on our backlog of $154 billion, with about 90% of that backlog in services. Revenue was up 19%, with services up 12%, driven by shop visit revenue, higher spare parts, and price. Internal shop visit revenue, representing around 60% of services revenue, grew double digits. Increased work scopes, higher pricing, and engine mix more than offset shop visit volume that was down 3% due to material constraints. Spare parts revenue, representing roughly the other 40%, was up from higher volume and price. Equipment grew 38%. While we made progress, supply chain constraints impacted total deliveries, down 2%, including LEAP, down 5%. For the year, LEAP deliveries were down 10%, in line with our latest expectations. Lower volume was more than offset by customer mix and price. In addition, given our growing fleets with high utilization, we caught up on spare engine deliveries to support fleet stability. Although the spare engine ratio was elevated in the fourth quarter, the overall LEAP life of program ratio through 2024 remains in low double digits. Profit was $2.2 billion, up 44%, as spare parts volume, increased shop visit workscope, mix, and price more than offset inflation and investments. Margins expanded 490 basis points to 28.2%. Overall, CES delivered strong full-year results, with orders up 38%, revenue up 13%, and profit growing 25% to $7.1 billion. Margins expanded 250 basis points to 26.2%. Moving to DPT, orders were up 22%, primarily driven by Defense & Systems. Demand remains strong here as well, with defense book-to-bill of 1.2x for the quarter and the full year. Our backlog for the segment is now at $18 billion, up more than $1.5 billion year over year. Revenue grew 4%. Defense & Systems revenue was up 6%, driven by higher engine deliveries and price, partially offset by lower services. Defense units were up 20% year over year, with more than 90% quarter over quarter. Propulsion & Additive Technologies, or PAT, grew 2% as lower commercial volume at Avio was more than offset by growth in other PAT businesses. Profit was up 2%, driven by improved pricing and productivity, partially offset by investments in next-gen engines and inflation. Margins were down 20 basis points. Overall, a strong finish, as full-year orders were up 10%, revenue grew 6%, and profit was up 17% to $1.1 billion, with margin expansion of 110 basis points. A moment on Corporate. We made substantial progress to ensure our operations reflect the needs of GE Aerospace as a standalone company. Corporate cost, including eliminations, was about $860 million for the year. Eliminations increased by $100 million to approximately $470 million from higher internal volume in PAT. Excluding eliminations, cost was down over a third to roughly $400 million, driven by lower functional expenses and higher interest income. We also fully exited our remaining stake in GE Healthcare this quarter. For the year, we returned more than 100% of our free cash flow to our shareholders, including $5 billion of share buyback and a dividend of around 30% of net income. Based on the strength of our performance and balance sheet, GE Aerospace is well-positioned to compound shareholder returns for the long term.

Switching to our 2025 guidance. Starting with CES, we expect mid-teens revenue growth for the segment. We are now expecting services to be up low-double digits to mid-teens, up from our prior view of low-double digits. At the midpoint, we expect internal shop visit revenue to be up from higher workscope, improved pricing, and high single-digit shop visit volume growth, which is pushed to the right from 2024. We continue to expect low double-digit spare parts revenue growth from mid-single-digit air traffic growth and pricing. We expect equipment up high teens from growth in engine volume, including LEAP deliveries up 15% to 20% and pricing, more than offsetting negative engine mix. We expect $7.6 billion to $7.9 billion of profit at CES, reflecting the benefit of services growth. This will be partially offset by the impact from increased R&D investments and higher GE9X deliveries in the second half of the year. We also expect a lower spare engine ratio. In DPT, we expect mid- to high-single digits revenue growth with increased defense units and profit in the range of $1.1 billion to $1.3 billion. Higher defense deliveries are partially offset by self-funded investments in the first half. Corporate costs are expected to be less than $1 billion. Eliminations are expected to grow as internal PAT volume grows. In total, we expect another year of low double-digit revenue growth for the Company, with profit in the range of $7.8 billion to $8.2 billion, up about $750 million or 10% at the midpoint over 2024.

Turning to Slide 12, we expect EPS to be in the range of $5.10 to $5.45, up roughly 15% at the midpoint. About 80% of the improvement will be from higher profit. The balance will come through a reduction in the tax rate, which is expected to improve to below 20%, and the benefit from share repurchases, including the $5 billion executed in 2024 and an additional $7 billion expected in 2025. We expect to generate $6.3 billion to $6.8 billion of free cash flow, with year-over-year growth primarily from higher earnings. Contributions from working capital and AD&A combined year over year will be more than offset by higher CapEx and cash tax payments. Overall, we expect another year of conversion that is solidly above 100%. Taken together, GE Aerospace is poised for another year of growth ahead. With that, Larry, I'll turn it back to you.

Perfect. Thank you. 2024 clearly was a strong first year for us as GE Aerospace. We grew revenue, earnings, and cash significantly, along with returning over $6 billion to shareholders. That performance was underpinned by our competitive advantages. Our platforms are preferred by customers across the narrow-body, wide-body, and defense sectors. Our industry-leading services and technologies provide the highest levels of operational reliability, including greater efficiency, time on wing, and faster turnaround times. At the core of everything we do is safety, quality delivery - in that order. We're focused on unrivaled customer service and flight support across the industry's most extensive install base with 70,000 engines. Our breakthrough innovations in both commercial and defense paved the way for more sustainable flight. FLIGHT DECK, which connects our strategy to our results, enables us to deliver and create exceptional value for our customers and our shareholders. We believe our path forward is clear. We're well positioned to deliver another year of substantial growth and deploy over 100% of our free cash flow to shareholders. Before we wrap our prepared remarks, I'd like to take a moment to express our support for all of those impacted by the fires in Southern California. Seeing our CF6, CFM56, and T700 engines powering many of the planes battling the fires, we feel a deep connection to our commitment to safety and hope that those fires can be contained soon. Blaire, shall we go to Q&A?

Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, can you please open the line?

Our first question comes from Scott Deuschle with Deutsche Bank.

Rahul, can you refresh us on what the 2025 guide is assuming with respect to LEAP OE profitability? And then, when LEAP OE achieves breakeven, do you foresee the profit trajectory flatlining from there? Or is it reasonable to think that LEAP OE could be a profit center in its own right as time goes on and you benefit from some of these recent pricing gains and operational efficiency initiatives?

Yes, absolutely, Scott. Let me start and then Larry can add. Clearly, it’s been a very successful year for LEAP overall. I can begin by answering your question, and Larry can discuss the operational improvements we’ve made with LEAP. First, Scott, it was a milestone year for LEAP. LEAP services became profitable in 2024, and we expect the program to break even in 2025, with OE following a year later in 2026. Our prior expectations remain unchanged. Looking at LEAP’s performance during the year, the profitability for the program exceeded our initial expectations due to increased external spare parts volume, improved pricing, reduced warranty expenses as some of those fixtures are being implemented, and a higher number of shop visits than we initially anticipated. Key milestone for 2025 is that the profitability and margins of the program are improving thanks to increased shop visits and higher external spare parts volume. The OE performance is set to improve despite more engines being shipped. Regarding external services volume, in 2024, external shop visits were just above 10%, and we anticipate that will rise to 15% in 2025. Of the shop visits we have sold, about 25% are non-GE/Safran shop visits, which will contribute to future profitability. Overall, the program is on a positive trajectory. As the program breaks even this year and OE becomes profitable next year, I believe the growth trajectory of the services associated with the installed base will drive the program forward. We expect LEAP to reach levels comparable to CFM56 by 2028. CFM might be performing slightly better, but that’s the path we’re on, leading to a point late in this decade when LEAP and CFM will deliver similar profits for the company. Larry, do you have anything to add?

I believe you have addressed the situation well. Much of what we’ve discussed this morning regarding supply management positions us favorably, especially as we look at the ramp-up of LEAP. We project that new LEAP units will increase by 15% to 20% this year, with additional growth anticipated thereafter. This growth in the installed base and the aftermarket opportunities that Rahul mentioned are directly linked to our current actions regarding the installed supply base. Additionally, the progress we made with the HPT on the LEAP-1A at the end of last year strengthens our position in the market. We are aware that the engine is performing effectively, and our market share of cycles is expected to rise by 300 basis points in 2024. We have many positive developments ahead of us, and it is still relatively early for LEAP.

Our next question comes from Myles Walton with Wolfe Research.

Congrats, Blaire, well deserved. At the start of '24, you were looking for about $1 billion of operating profit growth in '25 versus 2024. The new guidance, Rahul, as you mentioned, is $750 million of growth. I'm not oblivious to the fact that you blew away the 2024 base number. But curious, just as you look at that sequential climb to '25, what in the base profit of '24 didn't translate into '25?

Myles, looking at the numbers you mentioned, we were anticipating a profit of approximately $7.2 billion to $7.3 billion by the end of 2025 back in March 2024. This was an increase of about $1.5 billion to $1.6 billion from our 2023 results. Currently, as Larry pointed out in his prepared remarks, we expect to add around $2.5 billion in profit over the next two years, which is about a third better than our projections made nine months ago. The business is thriving. For the 2025 profit, we're forecasting around $800 million year-over-year at the midpoint, with a range between $750 million and $1 billion at the upper end. We mentioned the corporate eliminations, which are up about $100 million due to higher PAT volume. Setting that aside, we expect CES profit to increase by about $700 million at the midpoint. The primary contributor to profit growth in CES will be the revenue drop-through from services, which we anticipate will grow by about $3 billion year-over-year at the midpoint of our guidance. We expect services margins to remain flat, even though LEAP will comprise a larger share of that revenue, as productivity and pricing are offsetting the impact of the LEAP mix. In CES, the impact from OE will be roughly balanced between the R&D step-up and the increase in GE9X shipments. We project GE9X to present a couple of hundred million dollars headwind in 2025 as we increase the number of engines we ship. The spare engine ratio is also expected to gradually decrease in 2025. Turning to DPT, with backlog growth of $1.5 billion, which is nearly a 10% increase in 2024, we anticipate mid-to-high single-digit revenue growth. This growth should translate into increased profits, with margins expanding by about 70 basis points at the midpoint of our guidance. Overall, we expect 2025 to be a solid year. In order to reach the high end of the $1 billion profit we discussed, we just need services to perform slightly better and hit the upper end of the guidance.

Our next question comes from Ron Epstein with Bank of America.

Good morning. Question for you on the GE9X. When we think about that, I mean, 777X is back in-flight test. Are there other opportunities for that engine beyond the 777X?

Ron, I would say that, at this point in time, we're fully focused on helping our friends in Seattle get this plane launched. We're obviously proud to be under wing. We think it's going to be a great wide-body program over time. Delighted to see, as you mentioned, flight testing resume. We've started to ship engines to Boeing, so we've got work to do clearly, but the customer feedback relative to that aircraft and that engine continues to be quite strong. We've got nearly, what, 1,000 engines now in backlog. I'd like to think that with the delays, we've made good use of that time with respect to just additional testing, probably going to end up being the most tested engine in our history. We're approaching 2,500 cycles. In fact, we've got a second dust test engine, critical and harsh and hot environments underway. We're already on our second iteration of HPT blades, let alone the CMC nozzle designs. So, we're focused on that at the moment, but excited about that backlog and, ultimately, EIS.

Our next question comes from Sheila Kahyaoglu with Jefferies.

Congrats, Blaire. I wanted to focus back on CES margins in Q4, just given the performance was so stellar at 28%. And even on slower expected services growth, given the internal shop visit volume hasn't quite turned the corner. When we think about the 2025 outlook, and Rahul, I know you talked about this a little bit, services, you raised the guidance here from just one month ago to low to mid-teens. Can you talk about the moving pieces as you think about just the mix of spares, parts versus internal, and how the different engines are contributing to that? And maybe if you could just talk about the cadence throughout the year as well.

All right. So, Sheila, let me start, and obviously, if I don't hit anything, come back and make sure we answer the question. CES had a good quarter, better than what we had expected. Favorable services mix, Sheila, as you mentioned, the shop visit volume wasn't exactly where we needed to be, but spare parts did better. As we're trying to manage the supply chain challenges that we're encountering, those parts are fungible, and we move them around every quarter to make sure that we are supporting our airline customers. There's always a little bit of tension between external spare parts volume and internal shop visits. The mix skewed towards the spare parts in the quarter. Engine mix was favorable as well. We caught up on the spare engines that we had not delivered in the first three quarters, and we caught up here in the fourth quarter. Overall, we expect spare parts to remain strong here, with the external market in mind. We expect the departures to be up kind of mid-single digits, and then all the pricing changes that we implemented last year will start to pay off. For 2025, we do expect shop visit revenue to be up mid-teens. That will come from high single-digit shop visit volume growth combined with increasing work scopes and some modest price increases. So, that's kind of the landscape of the CES revenue growth, which will drive the profit.

Our next question comes from Doug Harned with Bernstein.

I want to just follow up a little more on the commercial services growth. When you talk about low double-digit to mid-teens next year, that's a little better than you were talking about before or this year. But can you talk about where that's coming from? Because wide-body versus narrow-body, in other words, could you go higher if you can resolve these supply chain issues?

Doug, as you would imagine, it's a broad-based demand strengthening that we see. Could we go higher? We've got work to do with the supply chain to execute on what Rahul just walked everybody through. But there is more pent-up demand there. We've got the backlog. An unhelpful level of that is in many respects delinquent. If we could continue to deliver the sequential improvements in inputs, combined with the progress we're making, I wouldn't say no. It won't be a demand challenge for us in 2025, we believe. Given the environment and the backlog, our focus is on operational execution.

Our next question comes from Robert Stallard with Vertical Research.

Just a question on the LEAP. You're expecting 15% to 20% growth this year, and Rahul said that you expect the spares ratio in that to come down. Looking at the remnant of those engines, how are you expecting the split to go between Airbus and Boeing in 2025?

We don't get into that level of detail publicly. But we are, as you would imagine, in frequent contact with all of our customers, particularly those two, regarding their intentions for 2025. I believe we are well-aligned to support both of them as they ramp up production this year.

Our next question comes from Seth Seifman with JPMorgan.

I wanted to ask about the growth in spares. You mentioned departures and pricing. I'm curious about the involvement of third-party shops in performing more LEAP maintenance over time, how much that has occurred, and its impact on the spares growth trajectory. I would also like to know how this relates to your capital expenditures.

So, Seth, let me start and Larry can jump in here. As we're coming out of the gate here, most of the shop visits have been internal. As we said, about 90%, give or take, were shop visits that we performed within Safran and GE. The external network is beginning to step up. We have five external partners, and they're beginning to get volume. Those visits have been increasing sequentially as the year has gone on. As we think about 2025, we expect about 15% of our shop visits to be external, and about 25% of the shop visits sold are going to be performed by our third-party MRO partners, growing as we get into 2030 and beyond. Overall, even on the services side, on our internal service contract, our margins on our internal work remain very stable. We feel good about that as well.

Our next question comes from David Strauss with Barclays.

I just wanted to touch on the free cash flow forecast for 2025, Rahul. Maybe if you could go into the breakdown between inventory, LTSA cash, AD&A, just those moving pieces within working capital.

Yes. David, most of the cash growth in '25 is going to be driven by our earnings. Working capital and AD&A combined should be a positive contributor. The inventory buildup should be less than what we had in 2024. We added about $1.5 billion of inventory in 2024, and we're not expecting to add the same level. Our primary objective is to increase our deliveries, and we will do what it takes. With the improvement in deliveries, some of the inventory we've built up will start getting liquidated. The contract assets will not be as favorable in '25 as we ramp up shop visits, still positive but not as much. For AD&A, we ended at about $300 million of outflow in '24, which was consistent with what we thought at the beginning of the year, a little bit more skewed towards the fourth quarter, but expect overall AD&A outflow to be at the same level, maybe marginally higher. The positive contributions from working capital and AD&A will be offset by the expected higher cash tax payments next year and a step-up in CapEx. Overall, conversion remains solidly above 100%, but maybe a little lower than what we had in 2024.

Our next question comes from Jason Gursky with Citi.

And Blaire, congratulations on the elevated role, well-deserved. Rahul and Larry, I was wondering if you could spend a few minutes on labor productivity across the Company and where you think you are relative to pre-pandemic levels. And what you think it's going to take for the Company to get back to the productivity that we're seeing prior to the pandemic? How much of that is actually in your control and how much of it is dependent on external suppliers getting you what you need on time?

Jason, I think that as I look back on 2024, everything that we saw in the financials and on the ground visits shows ample evidence that the FLIGHT DECK principles and tools really are helping us improve labor productivity. Unfortunately, that work hasn't fully translated into better delivery performance or labor productivity due to inbound delivery challenges. However, the progress we're making with material inputs will enable us to have more predictable flow through our factories and repair shops, improving labor productivity in '25.

Our next question comes from Gavin Parsons with UBS.

I'd love to just kind of go further into supply chain a little bit. It sounds like it's getting better. You've got the LEAP-1A blade certified, but internal shop visits were still down in the fourth quarter. Just maybe if you could go into where the bottlenecks or the pain points still are and if that's a linear improvement through '25 or if that's a step function at some point on an unlock?

We don't have much by way of new news in that regard. The challenge remains with 15 or so critical suppliers that we're working intensely with. We have over 500 of our own people embedded in the supply base to identify and eliminate constraints, unlocking the output we need. The progress made in 2024 was significant but came in fits and starts. We don't expect a step function improvement but a continuous improvement as we move through 2025, particularly as we support Boeing with their ramp-up, especially concerning the 737 MAX. We know we have much to do, but we have made good headway entering 2025.

Gavin, just to add to what Larry just said, as we're coming out of the gate here, you saw the sequential improvement in our engine output in Q4. We expect continuous sequential improvement as we progress through the year, with more growth year-over-year in the second and third quarters.

Liz, we have time for one last question.

This question comes from Robert Spingarn with Melius Research.

Larry, maybe I can finish off with a high-level strategic question. Some would argue that RTX's ability to bundle Pratt's propulsion technology with Collins' offering in avionics and structures could provide them with a competitive advantage when bidding for work packages on future aircraft programs. Your balance sheet is in great shape. This is evidenced by your updated cash deployment plans this morning. Since you are going to generate a lot of cash over the next five years, is there any desire to expand the business beyond propulsion through organic or, more particularly, inorganic means?

I think we will stand by our capital allocation framework that we shared almost a year ago now regarding how we think we will deploy our cash flows and reserves in '25 and beyond. We certainly have ample resources. However, we will maintain a strong bias toward shareholder returns. It doesn't mean that we will exclude M&A, but as you saw with the Northstar announcement, much of what we will do will be small tuck-ins and adjacencies. I won't comment on specific situations, but we appreciate and understand the question.

Larry, any final comments?

Blaire, I would wrap up to say the team all around the world delivered standout results in 2024. The finish in the fourth quarter was no exception. I hope everybody on the call heard how excited we are about the year ahead as we work to meet what we believe to be historic industry demand and deliver for our customers. We certainly appreciate your time today and your interest in GE Aerospace.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.