Good day, ladies and gentlemen, and welcome to the GE Aerospace First Quarter 2026 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, Blair Schor, from the GE Aerospace Investor Relations Team. Please proceed.

Thanks, Liz. Welcome to GE Aerospace's first quarter, 2026 earnings call. I'm joined by Chairman and CEO, Larry Culp, and CFO, Rahul Guy. Many of the statements we're making are forward-looking and based on our best view of the world and our business 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 will speak to total company and corporate financial results and guidance today on a non-GAAP basis. Now, over to Larry.

Thanks, Blair. Good morning, everyone. I want to start by addressing the conflict in the Middle East and the dynamic geopolitical environment our industry is navigating. While we're hopeful for a peaceful resolution, we're also embracing today's reality. With safety, our top priority, we're focused every day on supporting our teams in the region and our customers globally. At GE Aerospace, we remain committed to our purpose. We invent the future of flight, lift people up, and bring them home safely. Right now, nearly 1 million people are in flight with our technology underwing. A responsibility are 57,000 employees. Turning to our first quarter results, 2026 is off to a strong start. Orders were up 87%, with CES nearly doubling, and DPT up 67%, included record defense orders for this decade. Revenue increased 29% driven by CES services and double-digit growth in DPT. Operating profit grew 18% with both segments up double digits. And EPS increased 25% to $1.86 with free cash flow up 14%. Flight Deck enabled us to improve output again with commercial services revenue up 39% and total engine deliveries up 43%. All the while, we're continuously investing to improve time on wing and lower cost of ownership for our customers across our current fleet and for next-generation technologies to both the GE Aerospace team and our supplier partner in commitment to deliver. Turning to slide four and what we're currently seeing in today's operating environment. In the first quarter, global departures were up low single digits including a high single-digit decline in the Middle East, which represents roughly 5% of our departures. And for the balance of the year, we've assessed multiple scenarios to develop a range of outcomes, with our current assumption that the conflict and its effects continue through the summer. As a result, we're reducing our full-year departures outlook from mid-single-digit growth to flat to low-single-digit growth. This includes a low double-digit decline in the Middle East for the year with modest reductions. Based on our experience during the global financial crisis, the impact of services will likely lag changes in air traffic demand by several quarters to be followed by a period of above-average growth. We're well-positioned to navigate cycles with our backlog providing resilience through changes in air traffic. And we have a young and diverse fleet with leading programs in both narrow-body and wide-body. The largest program, the CFM-56, about two-thirds of the fleet is yet to undergo a second shop visit, and utilization remains stable, supporting continued demand. Defense businesses supporting U.S. and allied warfighters, with our engines powering the Black Hawk, the Apache, the B-1, the B-2, the F-15EX, the F-16, and the Eurofighter. We're seeing increased utilization since March, creating future aftermarket demand. Diving deeper into services and services orders and backlog, our commercial services business is supported by a robust backlog of over $170 billion, up nearly $30 billion since the end of 2024, providing visibility into multi-year demand and supporting our continued growth. Over the last 12 months, commercial services orders increased over 30%, including 49% growth in the first quarter. However, within services, demand remains strong for spare parts, which represent roughly 40%. Since the beginning of March, spare parts orders are up over 30% year-over-year and sequentially flat to the first two months of the further 25% revenue growth. Demand continues to exceed supply. As a result, spare parts delinquency, which represents shipments that have been delayed due to material availability constraints, is up roughly 70% since the end of 2024. Given the sustained demand environment and our existing delinquency, we're entering the second quarter with more than 95% of spare parts revenue already in backlog. Turning to internal shop visits, which represent roughly 60% of our service revenue, approximately two-thirds of the engines due for our projected shop visits for all of 26 are currently off-wing, either in our shops or waiting to be inducted. Additionally, we have high visibility into the engines, which will come off-wing over the next couple of quarters based on utilization trends and required removal thresholds in concert with the airlines. Planned engine removals in the second and third quarters, combined with engines that are currently off-wing, exceeds our shop visit guide, providing ample demand to fulfill our outlook and de-risking our 2026 guide. We expect a limited impact on services revenue and profit in 26. We're holding our full year guidance across the board, given the macro uncertainty, though with our strong start to the year, we are trending toward the high end. Tech is fundamentally changing the way we operate, and at times like these, it matters even more. Collaborative problem solving with suppliers, air framers, airlines, and lessers are key to this. For example, we recently hosted a key supplier at our Terre Haute-Indiana site. Leveraging Flight Deck, we worked together to improve flow and reduce waste, and they've since increased output by over 40%. Actions like these contributed to priority supplier material input, increasing double digits both sequentially and year-over-year again in the first quarter, resulting in the increased outputs I mentioned ago, including engines up 43%. MRO network, we're using flight deck to increase output, reduce turnaround times, and lower the cost of shop visits. Take our McAllen, Texas site, where we've reduced LEAP high-pressure turbine repair time by over 50% by redesigning the cell for better flow. And we know AI will be an accelerator at Indiana facility. We expanded the deployment of an AI-based material assistant to predict shop visit work scopes for LEAP engines nine months in advance. Building on the turnaround time reduction, we've recognized in both our Selma and Malaysia sites we've moved shop visit turnaround times for both narrow-body and wide-body platforms year-over-year. With our growing install base, we're focused on expanding capacity to fulfill customer demand. Within the LEAP external network, Delta Tech Ops is now the first North American airline MRO provider licensed for both the LEAP 1A and LEAP 1B. And we just announced Iberia as our seventh premier MRO supporting growth in Europe. Maintaining U.S. aerospace leadership requires sustained investment to meet customer demand. We recently announced plans to invest $1 billion in our U.S. manufacturing sites and supply base for the second consecutive year to help accelerate engine deliveries, ramped part production that extends time on wing, and strengthen our additionally 100 million dollars will be invested in our external supplier base to provide equipment and tooling to increase capacity. These actions and investments are driving meaningful progress to increase services and while there's more to do we're off to a strong start in position to ramp even further. Gifting to slide seven our growing backlog reflects our commitment to deliver customer value. We're investing to improve time on wing and cost of ownership. One billion dollar investment in U.S. manufacturing supports expanding capacity for LEAP durability upgrades and we're making progress upgrading the fleet with durability kit now on over 30% of the LEAP 1A installed. Turn around times and lower costs 50% less than a new part. At our Singapore repair facility we're investing 300 million dollars in repair process driven approach is driving 650 commercial engine, or over $1 billion in wins in the first quarter alone. This included extending our 50-plus year partnership with American as they celebrate their 100th anniversary this month. American recently committed to more than 300 LEAP-1A engines with options for 200 more to power future A321neo and A321XLR deliveries. United, also celebrating 100 years this month, selected 300 GE NX engines for its 787 fleet, making it the largest GE NX operator globally. And additionally, Delta committed to 60 GE NX engines with options for 60 more for its new 787 fleet, marking its first GE NX selection. In services, we signed an agreement with Ryanair, covering approximately 2,000 CFM56 and LEAF engines. providing material support and MRO services to scale their in-house capabilities. Consistent with our open CH-53K and the critical missions it performs for the U.S. Marine Corps, we were awarded a $1.4 billion contract for additional T-408 turboshaft engines. To continue to momentum, we're looking forward to what should be an exciting Farnborough Airshow in July. Current fleet is also informing next-generation technology investment. RISE is central to that strategy and will enable improved efficiency without sacrificing durability. This quarter, together with the Civil Aviation Authority of Singapore and Airbus, we established the world's first airport testbed for open fan technology as a part of the RISE program. This testing will validate how next-gen engine architectures operate in real-world airline environments and marks another step forward toward ground and flight tests later this decade. In defense and systems, we also continue to execute with speed against high-priority military needs in support of U.S. and allied warfighters. This quarter, deliveries were up 24%, and we continue to receive awards across our family of small engines, a key growth area as programs progress. This included an award from the U.S. Air Force to complete an initial design concept of the GEK-1500 in partnership with Kratos with potential applications across unmanned aerial systems, collaborative combat aircraft, or CCAs, and The work is being informed by the maturity of the GEK-800, which completed successful altitude testing last fall. The team designed, built, and tested the first GEK-800 in less than 12 months, testing the fifth iteration of the engine last summer and we're making progress with high-end CCA's through our partnership with shield AI for the expat vehicle program pairing our propulsion development testing and certification expertise with their autonomous aircraft capabilities to accelerate delivery of mission ready capabilities also recently completed a preliminary design review on the hybrid electric turbo generator engine system for beta technologies MB 250 VTOL autonomous aircraft this confirms the engine concept and demonstrates the power of combining our technical expertise accelerating key programs stepping back we're driving measurable progress on what matters most to our customers ramping output and improving durability while reducing the cost of ownership all right thank you good morning everyone we started the

year with over 20% stop line and earnings growth. Orders were up 87%, with CES up 93% and DPT up 67%. Revenue increased 29%, with CES up 34%, while DPT was up 19%. Operating profit was $2.5 billion dollars up approximately 380 million dollars driven by services volume and price margins as expected decreased 200 basis points to 21.8 percent from the impact of install engine growth investments and inflation eps was one dollar and 86 cents up 25 percent from increased operating profit, a lower tax rate, and a reduced share count. Free cash flow was $1.7 billion, up 14%, largely driven by higher earnings. Working capital and ADNA combined was nearly a $500 million source with strong utilization billings, partially offset by the expected timing of compensation payments. Going deeper on our 25% EPS growth this quarter, growth in operating profit drove $0.29, or nearly 80% of the improvement in EPS, with increased profit in CES and DPT. This was partially offset by higher corporate costs and eliminations, which were up around $120 million, roughly half from an increase in eliminations and half from an increase in environmental health and safety expenses. of a low base. A lower tax rate and reduction in share count drove an additional 10 cents of EPS growth. Tax rates decreased three points to 14.7 percent from earnings mix and benefit from recent tax legislation. Share count was down 24 million from our previously announced capital allocation actions. Turning to CES, orders grew 93% with services up 49% and equipment more than tripling to nearly $8 billion. Revenue increased 34%. Services grew 39% with internal shop visit revenue up 35% from higher volume, including LEAP internal shop visit growth of over 50% and increased work scopes spare parts sales were also up over 25 percent from improved material availability and growth of external leap shop visits equipment revenue grew 20 percent with engine deliveries up 50 percent including leap up 63 percent wide-body deliveries were also up over 25 percent driven by GE NX which was up even more. Profit was $2.4 billion, up nearly $450 million from higher services, volume, price, and the absence of charges related to estimated profitability on long-term service agreements taken in first quarter of 2025. As expected, margins were down 230 basis points to 26.4%, driven by installed engine growth, including 9x shipments and investments. Both install engine and spare engine volume increased year-over-year, but growth in installs outpaced spare engine growth. CES continues to deliver meaningful growth, largely driven by services as OE-RAM. In DPT, orders increased 67%, including T408 engines for U.S. Marine Corps CH-53K. Defense book-to-bill was above two for the second consecutive quarter. revenue grew 19%. Defense and systems revenue was up 14% as units grew 24% driven by an increase in F-110 and rotorcraft engines. Propulsion and active technologies grew 29% with growth across the portfolio led by RBO Aero. Profit grew 17% from increased volume and price. Margins were down 20 basis points to 11.8% driven by mix, investments, and inflation. DPT delivered a solid first quarter with continued demand strength, moving to guidance on slide 12. Our first quarter exceeded expectations, given stronger spare parts sales growth and shop business increase. We have a robust backlog supporting our growth for several years, and we are taking actions to navigate the current to the dynamic macroeconomic backdrop. We are maintaining our guidance across. As Larry mentioned, given our strong start to the year, we are trending toward the high end of the range of low double-digit revenue growth, profit of $9.85 to $10.25 billion, EPS of $7.10 to $7.40, and free cash flow of $8 to $8.4 billion for total company. We are also maintaining a segment guidance for both CES and DPT with a similar trend toward the higher end. Our guidance is based on full year departures growth of flat to low single digits and is underpinned by the following assumptions. Fuel prices remain elevated above current levels through the third quarter and decreasing to current levels by year end. A near-term impact from fuel availability in certain geographical regions. Global reduction in GDP growth impacting air travel demand. This guidance doesn't contemplate a global recession unfolding. Near-term, orders continue to be strong, and we expect the strength in the first quarter to continue into the second quarter with 95% of spare parts in backlog, and all shop visits for the quarter already off-link. As a result, we are expecting second quarter services growth of high teams above our full year guide and supporting total company year-over-year and sequential profit growth in the quarter. For full year, we are now expecting services revenue is up roughly $4 billion year-over-year from approximately $3.5 billion expected previously. supporting our increase of profit and cash to high end of the range. However, as we get into the second half, we are taking a more measured view. Given the evolving environment and have included the potential impact from deacceleration in spare parts growth, lighter work scopes, delayed spare engine shipments, and reduced billings, while the external environment remains uncertain, we are taking proactive actions. including managing discretionary spending and conducting reviews to assess risks and opportunities to support our customers. Overall, balancing the various factors, we are confident in our ability to deliver the high end of our guidance given our strong first quarter outlook for the second quarter and a substantial backlog. With that, Larry, back to you.

Rahul, thanks. Our momentum is further supported by our sustained competitive advantages. With the industry's largest fleet, 80,000 engines and growing, and more than 2.3 billion flight hours, we operate at scale with unmatched proximity to our customers across decades-long life cycles, which makes us the partner of choice. Combined with nearly $3 billion in annual R&D enables continuous improvement in time on wing and cost of ownership, directly aligned with what our customers value most. Across narrow-body, wide-body, regional, and defense platforms, we offer leading performance underwing, supported by deep technology expertise and a growing services network. Our world-class engineering teams develop next-gen technology to improve durability, efficiency, and turnaround times, along with advanced defense capabilities. and through flight deck we're turning strategy into results with a focus on safety quality delivery and cost hundred ten billion dollar backlog and the actions underway we're well positioned to manage near-term uncertainty and

deliver value with that let's go to the questions 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 ladies and gentlemen if you wish to ask a question please press star one one on your telephone if you wish to withdraw your question or your question has already been answered please press star one one again our first question comes from david strauss with wells fargo thanks

morning thanks for taking my question good morning david uh thanks for all the uh for the detail on how you're thinking about the aftermark but just one to one to clarify um so larry it sounds like you you ultimately do expect an impact on services growth from your from your lower departures go forecast but maybe it sounds like you're thinking more so in 27 or carrying into 27 than 26 given given your strong q1 and and the backlog that you have on the services side and i guess in terms of what you're how you're thinking this might play out are you thinking at this point there could be a pickup in in CFM 56 or G90 retirements are you just expecting you know lower utilization to come through at this point thanks David

I think that which what you see in the the lean toward the high end of the guide is the expectation that we're going to have a strong second quarter given the visibility that we have, both with spare parts and shop visits. We touched on that earlier. I think that's very meaningful. I think what we're acknowledging is it's very hard for any of us to call the duration of what's happening in the Middle East at this point. By holding the guide, I think what we've suggested is that we have the visibility that we do have for the second half should allow us to be within that guide that we offered up 90 days ago I think we are acknowledging that if there is sustained softness in departures that there is an effect typically the in the commercial services but with with a lag let's hope we're not staring at something akin to the GFC we mentioned that in our prepared remarks but there will be a lag of effect but at this point I think given what we know we feel strongly about our ability to deliver the high end of the guide here in 26 and

And David, just to add to that, if you think about 2027, like I said, we feel good about 26. But having leading positions in both narrow body and wide body, 75% share of the narrow body cycles, 55% share of the wide body cycles, is helpful in times like this when traffic growth is uneven as it dampens the volatility that we see in the market. Also, the fleet is done. You touched on the CFM56 and GE90. You know, a third of the CFM56s have not seen their first shop visits. Two-thirds have not seen a second shop visit. And similar trends for GE90. You know, 70% of the GE90s have not seen the second shop visit. And we're not, you know, through, you know, I know it's early days, but as we sit here in April, both the number of parked aircraft and the retirements are really low. In fact, the retirements in the first quarter for CFM 56 were lower than what we experienced in fourth quarter. So we've not seen any increase in either of those two trends. And as Larry mentioned, you know, in his prepared remarks, as we've seen in prior cycles, the air traffic has a strong recovery after every downturn. So, you know, if you see here delay, you know, if you see any impact here in the second half of the year, it is going to be a push out of demand versus a destruction. So, again, it's hard to call 27 just yet. It all depends on how the situation evolves over the next few months. But it is early to call, but overall, we feel good about the trajectory that the business is on through this cycle.

The next question comes from Sheila Kiyalu with Jeffries.

Good morning, guys, and thank you. Maybe just to follow up on David's comments, Larry and Raul, you know, services up 39% in Q1, great quarter, both on shop visits and spare parts, and Q2 expected to be up high teens, implying only mid to high single digits in the second half. So maybe delving a little bit more into visibility you guys have through the summer, and Raul, you mentioned push out of demand, not demand destruction. I guess, how do we think about where you guys are seeing most potential risks post Q4, whether it's narrow bodies or wide bodies, and how do we think about retirement rates staying low today

and potential assumptions for 26 and 27? Yeah, so, Sheila, I think we touched on a couple of things here. You know, as you said, we see good visibility into the second quarter, right? We've said, Larry and I both said, 95% of the spare parts for second quarter are in the backlog. All the engines that we need to work on for second quarter are in the shop. And Larry also kind of provided a fully a sharp visit review here that we are about a third oversubscribed right now from what's already offering and what will come offering here in the second and the third quarter. So that gives us confidence around around 2026 here. Now as you go to 2027 and may come I think we touched on you know the retirement you touched on retirement rates now keep in mind that the The retirement rates that we've assumed for 2026 for CFM 56 are in the 2% range. And what we saw in the first quarter is sub-1%. And as we get into 2027, we've already assumed in our prior outlook that retirements increased to 3% to 4%. So just the outlook that we've provided, we've factored in certain increase in retirements. Now we've not seen that. We are not seeing anything concerning just yet. our order trends are holding, but it is more with what is unknown. And that's a little bit of what you want to abuse for the second half of the year. And I think time will play out and more visibility into 27. But overall, listen, the business is strong, franchise is strong, and I think we should be able to navigate anything that evolves here over the next few months.

Our next question comes from Ken Herbert with RBC Capital Markets.

Yeah, hi, good morning. um larry and roo really strong yeah really strong spare parts orders in the first quarter i'm just curious especially your comment on march strengthening from the first two months do you get a sense that there was any pre-buying by your customers on the aftermarket ahead of potential disruptions or concerns down the road um i'm just curious as to what was underlying the real strength in orders in the quarter and if there could have been any pull forward in in

the order of demand. Thank you. Ken, I don't think we have seen any evidence of a pull forward here to Rahul's comments just a moment ago. When you think about the breadth of the portfolio, narrow body, wide body, on a global basis, we just haven't seen that sort of behavior. We also mentioned in the prepared remarks that as proud as we are of the operational progress that we've made, we still saw delinquency increase, the past due on the spare orders that we do have. So I think customers are busy. There's still perhaps some pent-up demand from the pandemic that is working its way through the system. But to your specific question, we have not seen that behavior.

Our next question comes from Christine Lewick with Morgan Stanley.

Hey, good morning, everyone. You know, Larry Rahul, you talked a lot about demand, and I just want to dive a little bit deeper here. You know, you talked about 2Q and 3Q engine removal pipelines are above your shop visit guide. So holding the macro environment you called out, is this higher removal pipeline contemplated in your upper-reach 2026 outlook, or could we see revisions higher in the year if oil resolves in 3Q?

Christine, good morning. I think if it were not for current events, we'd be talking about an increase in the guide this morning, not color and body language toward the high end of the existing range. You know, in many respects, just given the backlog that we've highlighted a couple of times already, both in terms of spare parts but also shop visits, absent a change in customer behavior and continued progress on our part relative to internal operational execution, uh that that potential does exist right but again i think given current events we thought it most prudent to uh simply stay with the range that we issued 90 days ago provide a little bit more color particularly with respect to not only the the quarter but the first half here i won't repeat what we've already said but i i think in terms of our ability to control the controllable feel very good about that. The progress that we've made with the supply base has been considerable already this year. I think it's just built on the progress over the last couple of years, and you see that not only in the input numbers we've cited, but in turn the output numbers as well, both in terms of units and dollars. That should continue. Yeah, and Christine,

just as Larry said, to get to a higher shop visit number, that is not factored into our guidance. So what we'll need to see is we'll need to see better material flow through here than what we have currently factored in to burn some of the delinquency that exists on both spare parts and the shop visits out. So that, to your point, will take our services guidance about where we have factored in around $4 billion of growth this year.

Our next question comes from Scott Deuschle with Deutsche Bank.

Hi, good morning. Good morning, Scott. Rahul, I was wondering if you might share with us an update on leap aftermarket profitability and particularly how leap aftermarket margins are trending in 2026 relative to 2025. And then I'd love to get your latest thinking on the path to margin expansion on the program beyond 26 and over the long term.

Yeah, no, Scott, on LEAP, the services business is trending really, really nicely. We're expecting, you know, a further improvement this year on margin. Trends have been good for the first half of the year here. And it's coming from a few things. It's coming from increased volume, right, that we are driving in our shops. Larry spoke about the repairs that we are developing in our aftermarket business. And this year, we expect the number of repairs that we're developing on LEAP to double over what we developed last year. So that is helping reduce the cost of the shop visit. The external channel is coming up nicely as well. We are at, you know, now about 15% of our shop visits for LEAP are now performed by third parties. That number was close to 10% just, you know, 18, 20 months back. So that part of the business is developing nicely. So if you put all that together, as you think longer term to your second part of your question, we do expect the LEAP service margins start to get to overall CES service margins by the time we get into 28-ish timeframe. So really pleased with the progress for a business that will just kind of break even to last 18 months.

Next question comes from Robert Stallard with Vertical Research.

Thanks so much. Good morning. I just want to follow up on slide five and that spare parts delinquency chart you've got in there is that continued March higher in delinquencies just due to continued demand exceeding supply supply chain strain and how long would you think it'll take to get that

back down to a more reasonable number it is despite the progress we've talked about a few times now this morning not only with inputs but outputs just a function of demand outstripping supply. We highlight delinquency simply to make sure investors understand that that dynamic is in play here. Operationally, it is a number we are not proud of, expectations in that regard. I think it's going to take us a while yet here to get to zero delinquency. That clearly is the goal, on-time delivery, one of our critical operational KPIs as part of Flight Deck. But I think given the continued momentum we see with our suppliers and in our own operations, that is something that we should deliver on in time, regardless of the demand environment.

Our next question comes from Douglas Harnett with Bernstein.

Good morning. Thank you. Good morning. I wanted to continue on to look at the current environment, Because when you look forward and see some of the challenges out there, you know, if we see jet fuel above $200 in Asia and in Europe, there are quite a few airlines that could be in some real under some real financial pressure. And when you look at the steps you need to take over the next year or so, how do you compare the concerns around, say, an airline that simply is in difficult financial straits and can't do an overhaul versus simply reductions in flying hours that could take some dollars out of LTSAs? How do you think about these different sort of hazards out there over the next year, perhaps?

Well, Doug, I think the scenarios that we talked about earlier have us contemplating a range of possibilities. Given that none of us know how things are going to play out here, particularly with respect to duration in the Middle East, I don't think we've tried to tether ourselves to one scenario or another. but considerable backlog we've talked about that a number of times this morning we are mindful of the risks that we may have in the customer base rahul and the team have increased the the work we do in that regard but first and foremost we're trying to support our customers as best we can uh to weather these storms as we have in uh in past situations be the pandemic be it the GFC and even situations that were of lesser impact. We are also putting our spending under greater scrutiny, continuing to invest in the future of flight, of course, continuing to invest in improved durability and lowering the cost of ownership. But given the situation, we are, I think, making sure that as a senior leadership team, spending in a let's say a more caution today given what we know and given what

we don't. Our next question comes from Scott Mekus with Milius Research.

Morning Larry and Rahul. I figured there'd be a lot of questions about the conflict in the Middle East so I wanted to check in on the GE 9x Boeing flag fatigue issue with the engine so just curious if you provide an update on that is there any change to the expectations you had for losses on the programs here?

No change on schedule, no change on losses. You know, I just start thrilled to be the sole source partner on the 777X. We've got over 1,000 engines now on order, and customers want the engines, they want the airplanes. What we've shared with folks is that we saw back in January a durability issue with the mid-seal. Remind everybody, this is on an engine that was certified back in September of 2020. Crack that we uncovered, a shop visit, which is part of a flight test engine, is something we've seen before. We think we are at root cause, and we're finalizing the modification as we speak. And we've been fully transparent with Boeing and the FAA every step of the way. So I think as Boeing has said, we believe we're on track with the certification plan that has been communicated to customers. No change to the schedule. And of note, the 777X flight test program continues, right? It's ongoing. With respect to deliveries, we had deliveries in the first quarter. Currently, we're continuing the buildup and assembly to the point of the mid-seal. We're modifying the tooling and ramping some suppliers for the modified part. So we'll end up having deliveries that will end up more second-half weighted. But I think at this juncture, no reason to believe the full year will be any different than what we've communicated.

Our next question comes from Miles Walton with Wolf Research.

Thanks. Good morning. I was going to switch gears a little bit on aeroderivatives, an off-topic question. But you had a disclosure that had a restatement and moved air derivatives equipment from your CES segment to your DPT segment. And what caught me in my eye was you had about 94 deliveries of air derivatives last year to your customers. But the pricing on those looks fairly benign relative to the potential for where pricing could be given the backdrop for power. So can you talk about what the strategy is for error derivatives and what the upside opportunity could be there for repricing and volume?

So we provide the engine, and then our partners in the JV, they take the product to market. They do the system integration, add some controls. There's work done by both the parties. But I think what you saw in our disclosure is basically the fact that we are burdening the pre-SPIN backlog, right? That was backlog that we had sold when we were part of one company that had certain different agreements. Post-SPIN, the pricing to the JV has been revised substantially, and we're kind of working our way through the old backlog and we should transition to the backlog that we've, to the orders that we have won post spin in the next, I would say 18 to 24 months. So you'll see gradually increase in pricing here over the next few months to quarters, right? So you'll see an improvement. But overall, I think it's a great business. It is, we are sold out here through 2030s. So that is, you know, that's one leg of this tool. And then obviously everything that you're seeing with now CFM 56 getting added to potentially to the power generation capacity that gives another leg of growth to our CFM56 platform, be it through, you know, spare part sales to third parties who are developing that product or some other form of collaboration. So I think we are exploring all those things. But overall, the error derivative business is in a really good spot of the market, both with the existing product that we have and potential new entrants to that market.

We moved it over from into DPT, really the opportunity to focus exclusively on the airliners.

The next question comes from John Godden with Citi.

You guys, thanks for taking my question. If I could just come back to CES margins specifically. There's a concern out there that, you know, if this fuel shock continues, retirement spike in particular, your CES margins would be at risk. You've obviously been very thoughtful about your guidance, embedded a pretty conservative outlook for global aviation. And it doesn't seem like you think that risk is particularly likely. So I'd love to just get your reaction to that, to the concern on margin risk, and what positive off-sense to this mixed effect might exist if global aviation continues to deteriorate?

So I think there's two parts to the question. I think for the current year, right, as you think about the margins, we've baked in kind of flattish margins here for the year. Now, as you think about the growth for the year, right, the $4 billion of the growth that we are now expecting, keep in mind the first quarter grew by about two billion dollars and then we are expecting high teens growth here in the second quarter so that you know that gets us closer to two-thirds of you know three-fourths of the growth will be in the first half of the year so we feel good about the growth rates that we have for the year and that should support kind of the flat the margin expectations that we have for the business now again what's happening in the year as we've discussed previously is that we're getting good support from our services growth. That's dropping through at a healthy cliff. And in the first quarter, service margins were actually up here over a year. So that was a positive trend. Now, we're not baking that in for the full year. Full year, we're expecting service margins to be flat, but it's a good start to the year. And that positive drop through from the services is getting offset by the OE growth that we saw. You saw that in the first quarter for full year, we're expecting lead deliveries to be up 15 percent and while both spare engines and install engines are going to be up for the year if the growth is primarily going to be driven by install engines here for the year and then we have 9x shipments so that kind of you put all that together we expect kind of flattish margins for the year for ces now as you go uh outside the year uh john we spoke about the leap margin trajectory earlier to scott's question we expect leap margins to approach overall ces levels of service profitability here in the next couple of years. 9x losses should also peak by the time we get to 2028, just given that we're driving a 50% reduction in 9x cost. Leap margins improving, 9x headwinds kind of peaking in 28, and that is when we expect expansion in the business.

Our next question comes from Gavin Parsons with UBS.

Good morning. Thanks, guys. This is Joao Santos filling in for Gavin Parsons. Thanks for taking my question. Moving to defense, strong results in 1KL and solid margins, stronger order environment. As we look through the rest of 26, how should we think about sustainability of growth margins in the segment?

In the first quarter, we're expecting high-teams revenue growth for the first quarter. And overall, if you look at the results for the first quarter, they keep us at pace for what we've guided to the full year, both on year-over-year profit growth and the absolute dollars of profit that we delivered in the first quarter. Now, margins are a little bit light in the first quarter, largely because equipment grew more than the aftermarket, you know, but that mix, but I think overall, as you think about the year, so we're going to drive and the mix improve as we go through the year. So I feel we have really, you know, given the growth rates that we had in the first quarter, we feel good about the year, and we do expect GPT to be the higher end of the guidance that we previously committed, just given the growth rates that we are seeing in the first quarter and the drop-through expected from that.

Our next question comes from Seth Seifman with J.P. Morgan.

Thanks very much, and good morning. Good morning, Seth. In the outlook where you talk about rent prices is remaining fairly elevated through Q3, I think. You know, in addition to Brent prices, we've seen significant increases in the spread for jet fuel. Are there special things we should be thinking about there and reasons why, from a jet fuel perspective, this could carry on longer and or be more disruptive than simply what's happening with oil prices?

Seth, I don't think we're trying to be too granular in the underlying assumptions, right? I mean, I think the economic reality is just what we're taking as a conservative board here, time will tell. But by and large, we know that between the inflation and potential scarcity in other parts of the world, that we could see some near-term airline behavior shift. But we're also assuming that by the end of the summer, we're on normal conditions. And given what we've seen, we may have a lag in the aftermarket on the commercial side of the business from what's happening currently. But then we tend to have a spring back, which is why we've kind of alluded to some of our historic... That demand tends to get...

Liz, we have time for one more question.

This question comes from Ghazam Khanna with TD Securities.

Hey, thank you. I had actually two questions, but the first one just on supply chain, you mentioned delinquencies and the like, but if you could just characterize how material improved sequentially and maybe just an update you've given in the past on how many suppliers and, you know, where the pinch points are strongest. And then just secondly, I was wondering on the company's aftermarket exposure to kind of low-cost carriers or business models in the airline industry that might be more affected by, you know, the top oil environment. Maybe if you could elaborate on that.

Yeah, maybe I'll take the supply chain question. I'll let Raul certain customers that we've seen double-digit increases again sequentially in year-over-year from some of the critical suppliers. I think we've said all along we're going to be the problem solvers, not the finger pointers. And I just am really pleased with the way we've had suppliers across the board engage with us. It's been a journey at every – simply getting better, trustworthy with each other. And in turn, we've just allowed our best people to go to Gemba to go to where the constraints, the bottlenecks exist and solve them. Again, there's no way we take engine output up 43%, right, without that sort of support from the customer base. Likewise, commercial services up 39%. There's no way we're able to get that volume out the door to serve our airline customers without really good progress using flight deck with a supply base that is not to suggest that we're all clear between now and 2030 or every year but what a wonderful challenge to have and again kudos to our team kudos to the supply base for engaging and supporting us with our ultimate customers in mind particularly here in the first part of

2020 and go to the second question I mean if I step back here and just look the environment that we've seen. We've spoken to the order trends, the conflict. There's nothing in the environment here that's giving us pause. We're eager to get back in the air. Yes, they're experiencing temporary disruptions, just given everything that's going on directly in the Middle East, a little bit from lack of availability of fuel prices, but everybody's super eager to get back and and so that's what we are seeing right now. We spoke to the strength that we're expecting here in the in the second quarter and as we think about the full year had it not been for the environment that we're in and I'm repeating something Larry said earlier we would have raised our wagons. It's about three hundred million dollars better than what we'd expected at the beginning of the year and then regarding that strength into the second quarter that the momentum is clearly carrying through and we spoke to both sequential and year-over-year profit growth here in the second quarter with high teens services growth expected the second half is just about what we don't know i think that that is the question so hopefully as larry said earlier we're being conservative and cautious prudent whatever words you want to use i think again time will tell but we feel about the year as we sit here today and we're not seeing any disruptive behavior on part of the customers we're not seeing any final

comment our customers value most higher outputs improve durability and lower costs of ownership even as we navigate the current environment we're confident in our trajectory and our ability to deliver value for customers and shareholders we appreciate your time today and your interest in GE

aerospace thank you ladies and gentlemen this concludes today's conference thank Thank you for participating. You may now disconnect.