GE Aerospace: Paris Air Show Presentation Transcript

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EDITED TRANSCRIPT

General Electric Co Aerospace: Paris Air Show Presentation

EVENT DATE/TIME: JUNE 20, 2023 / 6:30AM GMT

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JUNE 20, 2023 / 6:30AM GMT, General Electric Co Aerospace: Paris Air Show Presentation

CORPORATE PARTICIPANTS

H. Lawrence Culp General Electric Company - Chairman & CEO, GE Aerospace CEO

Russell T. Stokes General Electric Company - President and CEO of Commercial Engines & Services - GE Aerospace Amy L. Gowder General Electric Company - President & CEO of Military Systems Operation - GE Aerospace

Mike Kauffman General Electric Company - VP of Supply Chain -- GE Aerospace Mohamed Ali General Electric Company - VP of Engineering -- GE Aerospace

Riccardo Procacci General Electric Company - CEO of Avio Aero and VP & CEO of GE Additive -- GE Aerospace Rahul Ghai General Electric Company - CFO, GE Aerospace CFO

Steven Eric Winoker General Electric Company - VP of IR, GE Aerospace VP of IR

CONFERENCE CALL PARTICIPANTS

Andrew Burris Obin BofA Securities, Research Division - MD

Gautam J. Khanna TD Cowen, Research Division - MD & Senior Analyst

George Zhao Bernstein Ag - VP & Research Analyst

Jason Michael Gursky Citigroup Inc., Research Division - Research Analyst

Julian C.H. Mitchell Barclays Bank PLC, Research Division - Research Analyst

Kenneth George Herbert RBC Capital Markets, Research Division - Analyst

Kristine Tan Liwag Morgan Stanley, Research Division - Equity Analyst

Nigel Edward Coe Wolfe Research, LLC - MD & Senior Research Analyst

Sheila Karin Kahyaoglu Jefferies LLC, Research Division - Equity Analyst

PRESENTATION

Steven Eric Winoker General Electric Company - VP of IR, GE Aerospace VP of IR

Good morning. Welcome to the first Investor Meeting at the Paris Air Show since 2019. Last time I was here as well. It's great to see so many familiar faces with that, as well as our March investor meeting. Slightly more intimate, smaller facility. So I appreciate everybody who's been able to make it here as well.

When I see that video, I couldn't be more excited on behalf of the team, and we're all so excited for the future of GE Aerospace as a publicly traded independent company that's going to launch sometime early in '24.

Many of you have had the opportunity to see and will today our innovation and technology as well as our commitment to customers on display at the innovation showcase as well as through the air show. And hopefully, you had that opportunity or will.

Before we start, though, a few familiar reminders. First, the materials for today are on our website. Second, as usual, some 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 on our website, those elements can change as the world changes.

Now remember, at GE, with all our meetings, we start with SQDC in our framework, right? Safety, Quality, Delivery, Cost. Safety, number one. So with that in mind, let's begin with how our team on the ground from our ACSC business, Aerospace Component Services Center in Ohio, developed a pretty unique solution through lean practices to eliminate ergonomic risks.

(presentation)

Steven Eric Winoker General Electric Company - VP of IR, GE Aerospace VP of IR

So just a great example of using lean to reduce injuries, not just throwing money at capital and equipment before you get the process right, but using the process to help design equipment that actually improves the process along the way. I love seeing that.

So GE Aerospace overall is a safety-critical business. In that light -- an important reminder. For those in person here today, in the event of fire or other emergency, please exit the building through the doors closest to you and proceed to the gravel area that's outside the room where we just had breakfast.

So excited to be here today joined by Chairman and CEO, Larry Culp; as well as CEO of GE, as well as CEO of GE Aerospace. Many of the same leaders you heard from in March are here, Russell, Mohamed. We've got Amy, Rahul, and we have 2 new leaders -- not new

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JUNE 20, 2023 / 6:30AM GMT, General Electric Co Aerospace: Paris Air Show Presentation

leaders, but new to you, maybe on stage. One of them is Mike Kauffman, who runs and leads our supply chain with our supply chains around the world. Fabulous to get him on stage here. Riccardo Procacci, who runs Avio Aero based in Italy as well.

The agenda, as always, is packed. We tried to make -- fit in as much content as we could in a small amount of time. So presentations, Q&A sessions that will follow. And then, of course, our innovation showcase after all of that.

So with that, I'd like to welcome Larry to the stage.

H. Lawrence Culp General Electric Company - Chairman & CEO, GE Aerospace CEO

Thank you, Steve. And as Steve indicated, what we try to do with that safety moment is just start every session off with a reminder as to why safety is so important. Just keep it front and center. And as you saw on the video, also try to leave everybody with a little bit of knowledge, a little bit of perspective on how to improve safety. Hopefully, you took that away. I think most of our colleagues do when we start our meetings like this when we're back in the office. Welcome. We really appreciate you coming in to this admittedly frigid environment that Steve has created for us this morning. That's small humor. Everybody got it, will digest that as the morning goes on.

But as Steve indicated, we've got a lot to walk through. We are genuinely excited not only about our time together this morning, but frankly, everything happening here at the Paris Air Show. There's a lot. If you've been out to Bourget to see, but I think what you don't see in the Chalets and elsewhere, there's a lot of business being conducted very much in sync with the tone at the show this year in terms of the dual ramps that are underway, just a bear not to be seen here, and we're very excited about the position we have with that backdrop.

And we come here today, obviously, it is a near $30 billion business. So we occupy a lot of real estate. But more importantly, we believe we are the company shaping the future of flight. If we look at our purpose statement, you see it on the slide here, you've heard us talk about this. Those of you who were with us in March, heard us reference how we invent the future of flight, how we lift people up and bring them home safely. Those aren't just words. That really is a purpose that inspires the entire GE Aerospace team, the world over. Number of statistics capture our position in the marketplace and how active we are with the flying public. But to think at this very moment, 2/3 of 1 million people are aloft with GE technology under wing, right? That technology effectively define gravity. That's something we're very proud of, but it's also a responsibility we take incredibly seriously.

If I were to summarize the session this morning, for those of you who want to take a quick exit, it's really simple. And it hasn't changed much from March. Simply put, we know we're in a unique position of global industry leadership at just the perfect moment with respect to where the industry is today, not only, vis-a-vis, the post-pandemic recovery, but relative to the longer-term challenges of not only economic growth but also sustainability. As we approach things strategically, we really are breaking our business down into 3 phases. We've got a lot to do today. You'll see that in the course of the presentations in addition to getting ready for tomorrow. And tomorrow is, in fact, for many of us Wednesday. But at GE Aerospace, we're also thinking about the future. And given the long cycle nature of this business, the future isn't Friday, right? It isn't even 2024. There are technology bets that we're making today that will inform aviation in the 2030s and the 2040s. We take that responsibility seriously as well.

And all of this is happening against a backdrop, as everyone in the room knows, with GE, the parent going through a dramatic transformation that's going to have us sometime early next year spin-off GE Vernova. We're excited about that for a lot of the obvious reasons. But then when the dust settles and HealthCare and Vernova are doing their thing, we'll have GE Aerospace as a standalone public company, and we're really, really keen to get to that place.

Just to level set everybody for the morning, we'll get into a lot of detail. This slide may be familiar to some of you. But we come here today again, $26 billion in revenue off of last year, moving quickly toward $30 billion. You'll see us talk and report in the future basically in 2 segments: commercial, engines and services, and defense and systems. Obviously, our commercial propulsion business is the core of CES, where we've got a better part of $19 billion of revenue, 41,000 engines flying in our installed base today, really an unparalleled position, vis-a-vis, the installed base. And we know that we lead with technology. We lead with reliability. We lead with safety and frankly, trust. And you hear that, I think as you wander around Bourget and talk to the airframers, talk to the airlines that are here.

On the Defense & Systems side, similarly, a business that is, I think, well positioned for the demand drivers that are out there today,

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JUNE 20, 2023 / 6:30AM GMT, General Electric Co Aerospace: Paris Air Show Presentation

different but not unrelated to what we see in commercial aero. The world is a different place. We see readiness top of literally every government's agenda. We can play a very important part -- do play a very important part in that regard, coming in on $8 billion of revenue and installed base of over 26,000 engines. And again, both of these businesses are very well positioned. And those installed bases not only represent past success in winning new business, new platforms with the airframers, business with the airlines but in turn, really set the stage for us to stay close to our customers through our service business. And it's really our services business that captures the bulk of what we do. You see this with the animation.

I was really pleased that Steve was able to work that in and then it worked. But importantly, I don't want to be cute about this. 70% of our revenue, 70% of our revenue comes in the aftermarkets. 70% on the CES side, 60% in Defense & Systems. And we really like that. We like that for a lot of reasons. First and foremost, it keeps us close to our customers. Every meeting I was with are in yesterday with a customer was focused on how do we continue to keep planes in the air, right? And those daily conversations that we have at the ground level, those top-to-top dialogues really, I think, creates a customer intimacy, not only about what we're doing today but builds that confidence and trust for tomorrow that has served this business very well, frankly, over decades.

I think we also are proud of the fact that that's not a captive network. You'll hear more from Russell a little bit later about our open MRO network. That allows us not only to build capacity to service our customers as new platforms come online and those installed bases grow, but it also gives us an opportunity to shape the customer offering. They've got latitude to mix and match what they want to do through a product life cycle, and they do. And at each step of the way, whether it be early on or perhaps a platform's last flight, GE is there to support our customers. And in turn, we really think that is part of the core of our value proposition. It certainly yields some of the attractive economics that are obviously of interest to shareholders.

I won't belabor this slide. Everybody at Bourget, everybody here at the Paris Air Show knows that this is a unique moment. It's a special moment for the industry. The tailwinds continue to build. They've only gotten stronger since we were with many of you back at CTEC in March. Some of the recent IATA information is captured here on the left. We're seeing the same thing in our GE departures. And we've talked in the past about how we look at departures platform by platform, region by region, 6 a.m. every morning. And we can see continued strong growth in North America, not quite double digit, but close. And then really everywhere else in the world, particularly in the Pacific, especially with the China recovery, if I may, almost raging. And again, with that installed base, really well positioned to tap into that. We're excited about that.

And at the same time, not captured on the slide. Again, we see budgets continuing to grow in support of our aspirations in defense and systems in an uncertain world. We know and we're having conversations on a daily basis that we want to continue to not only support our customers, vis-a-vis, their readiness today, but their preparedness for tomorrow. So with all of that, we know we've got tremendous demand at our back, and that's a good place to be. We go to the next slide, and we talk a lot about the ramp here relative to the airlines today. Those installed bases of 41,000 engines, 26,000 in defense. But you'll continue to see big orders coming as we've captured here. We talked earlier in the year about the record-breaking deal at Air India, both narrow-body and wide-body. We're really honored to get the nod there. In turn, just a couple of weeks ago, we were celebrating with Michael O'Leary and the Ryanair team. The big MAX order they've laid in just yesterday at Jet2, another new order there almost up to 71 A320s and 321s.

And even on the military side, right, a big order nearly $700 million for the Sikorsky King Stallions. You just see this drumbeat right alongside the demand on the airlines today. So we're excited about what we're doing to build the installed bases going forward. If we go to the next slide, but we share that with you just as a matter of fact. And we do that with due humility, right? This is a team. And I can assure you, having been closer to the action over the last year, which has been a blast, by the way. We've talked about that maybe at the break. This is a hungry team. It's a team that is aware of all that has been left to us by those that have come before, but also our obligation to continue to manage and drive this franchise forward.

It always starts with the team. Those of you who've known me for a little bit. Now that is front and center. And I really like the work this team is today and the way we're continuing to involve tremendous domain expertise, right? There's no substitute for experience when you think about the high sciences that come together to put together an aircraft engine. And at the same time, we're mixing GE people, with people from the outside to create the best possible team to move these businesses forward. Steve talked about lean. You'll hear a lot, I think, today about how we're deploying lean to help us drive our operations better. Steve got the simple mantra right, SQDC. Those are

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JUNE 20, 2023 / 6:30AM GMT, General Electric Co Aerospace: Paris Air Show Presentation

the priorities. But it also in my experience, is a wonderful way to transform the culture. And I think we're seeing many green shoots across our company in that regard.

And in addition to lean, we talk a lot about decentralization because we want to make sure that we're really running the company, not from Evendale top down, but from the P&Ls that are dealing with customers day in, day out on up. And we've made some moves recently. We took our systems business, for example, for discrete P&Ls and say we're not going to run it as one. It's 4, so let's run it as 4. Amy took 2 of those, Power and Avionics. Riccardo took the other 2, Unison and Daudi. Time won't permit us to get into those businesses today, but just another proof point as to how we're decentralizing GE Aerospace to drive results for you and for our customers over time.

So you've got a team today and plenty of us who won't make the stage or will be at the perception later. It's a keenly focused team on what we need to do. This is the framework you've seen this slide before. Russ will come up and talk through the commercial side, both today and tomorrow with the airlines and the airframers. Amy and Riccardo will do the same in Defense and Systems. We'll bring up Mike Kauffman to really help underscore all that's happening in the supply chain that he leads to support those efforts. Mohamed will then talk to the future relative to technologies that are under development, progressing with an eye towards our sustainability mandate. And then Rahul will come up and put a bow on all of this with a detailed look at the financials.

So by quick opener. Again, we appreciate you being here with us today. And I think what we'll do here is get things started off with a quick video from our friends at Air Asia talking about our partnership. Thank you.

(presentation)

Russell T. Stokes General Electric Company - President and CEO of Commercial Engines & Services - GE Aerospace

A big thank you to Tony Fernandes. Just an amazing partner, a great customer. And we couldn't be more proud to really be able to support him and his team at AirAsia. Good morning. Thank you for being with us. I'm Russell Stokes, and I wanted to start off by really helping you understand what differentiates GE Aerospace on the commercial side of the business. There's 3 things that we tend to talk about. First, it is the breadth of our product portfolio: narrow-bodies,wide-bodies, regionals and business applications with 70% of the revenues of those businesses coming from the services side of the house. Second, technology. We deliver products that are reliable, efficient, durable, and it's reason that customers continue to make sure that we're the partner of choice.

Third, and we'll talk about this quite a bit. You've heard us reference it before, is that we operate what we call an open network, giving our customers true flexibility and maximum choice for where they want to be able to get their work done. You saw Larry lay out the framework in the previous section. And so let's just kind of talk about what this means in our group. This is something that we and CES spend a lot of time on in terms of communicating to the teams what's important where we are today and where we want to go as we head towards the future. Today, pretty simple. We want to make sure that we keep the value proposition for our installed fleets where it needs to be so that customers continue to operate them and that they continue to fly. We are working with our customers and make sure that we continue to have the right reliability so that they can trust these assets and to be able to do that with the right cost of ownership as well.

Tomorrow, we want to make sure that we're growing that installed base and that we're further optimizing the performance of NPI programs, like our LEAP engine and the GE9X that we're working with Boeing right now to certify that we'll launch in 2025. You heard the reference to SQDC. And we're making sure that we focus on that as well as we bring new products to life, making sure that they are safe as our previous generations that the quality, the durability and the reliability is there where the customers would want it to be. That we're delivering and navigating through those ramps. And that we have the right cost of ownership but operating in a way that we're generating real efficiency with the way that we perform and are able to operate the business.

Last but clearly not least, is the future. And it's there that we're really focusing on developing, certifying and scaling next-generation technologies, component technologies that will ultimately be part of entire new platforms. And I really hope that if you haven't had a chance that you do get a chance to come out to our chalet and see the model of the open fan engine in the chalet to be able to see it live. It is majestical when you get the chance just to see what it represents and the ingenuity of our engineering teams each and every day.

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