GE Aerospace management has altered its primary pitch to investors, shifting emphasis from the profitability of its services division to the scale of its engine fleet. The company's stock trades at 36.2 times earnings, significantly higher than the S&P 500's multiple of 21.4, making the basis for its valuation a central concern for shareholders.
A year ago, during the fiscal Q2 2025 call held on July 17, 2025, leadership described 70% of total revenue as coming from "recurring predictable and highly profitable services." This framing highlighted the stability and high margins of work performed on engines already in flight, such as shop visits and spare parts. However, on the fiscal Q2 2026 call held on July 16, 2026, that language was dropped. Management no longer led with the predictability or profitability of the services segment.
Instead, the company now leads with the size of its installed base. Management described its fleet as the industry's largest, comprising 80,000 engines. The fleet expands through new deliveries, which rose 26% in the most recent quarter. While services previously accounted for the majority of revenue, new engine deliveries grew faster. Commercial equipment revenue, derived from these deliveries, increased by 30% in fiscal Q2 2026, outpacing the 26% growth seen in commercial services. Both categories fall under the Commercial Engines & Services segment, which generated 73% of fiscal 2025 revenue.
The shift toward growing the fleet has contributed to a decline in operating margins. Operating profit as a share of revenue fell by 1.3 percentage points to 21.7% in fiscal Q2 2026. This decrease occurred despite a 24% rise in revenue and an 18% increase in operating profit, indicating that profit growth lagged behind revenue growth. Management attributed the margin compression to the expanding engine fleet, ongoing investments, and inflation.
Demand remains strong, but the pace of service growth is expected to moderate. Management raised its 2026 forecast for commercial services growth to a low-20s percentage range from previous mid-teens expectations. However, they anticipate growth slowing to low double digits in the second half of the year due to a difficult comparison with a very strong second half of 2025. Additionally, the number of LEAP engines in service is expected to more than double by 2030, prompting GE Aerospace to add service capacity.
A key distinction in profitability exists within the services portfolio. Service work on LEAP engines does not yet generate the same margins as the rest of the services business. Management expects LEAP service margins to match those of the total services portfolio by 2028. The next results report for fiscal Q3 2026 will test whether commercial services growth holds at low double digits and if operating margins continue to face pressure from slower profit growth relative to revenue.