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GE Aerospace announced a deal to acquire Consolidated Precision Products from private equity investors for $11.75 billion in late 2027. CPP supplies specialized metallurgical castings, airfoils, and other precision turbine parts to GE and others, which have at times bottlenecked supply.

Why it matters: Given the tight existing relationship between GE and CPP, we estimate CPP supplies around one-fourth of GE's airfoils; we aren't surprised by the transaction, which brings a key supplier in-house.

Key stats: Management estimates CPP will book about $2 billion in revenue in 2027, with about 60% from commercial engines and the remainder from defense and power generation customers. GE also believes it can wring out about $200 million in cost and productivity synergies beyond 2028, which may justify the 26 times estimated 2027 EBITDA multiple GE is paying.

The bottom line: The deal doesn't meaningfully alter our valuation, with some incremental revenue and earnings more or less offset by the purchase price. GE Aerospace shares trade around 6% below our $347 fair value estimate following the deal's announcement.

Our fair value estimate is $347 per share, representing an enterprise value/2026 estimated EBITDA ratio of 27 times and 44 times our 2026 earnings estimate. With GE’s engines powering nearly three-fourths of global commercial flights, the biggest profit driver for the company is simply more airplanes continuing to take off and land.

Given its portfolio of newer engines entering service, we see decades of sales and eventual profitability growth from manufacturing new engines in the medium to long term, while the company’s older workhorse engines should still provide over a decade of healthy profits, primarily from aftermarket engine services. We forecast 14% compound revenue growth from manufacturing over the next decade. In the larger commercial aftermarket business, we see 9.6% compound revenue growth over 10 years, with improving margins over time. Overall, including the defense and propulsion segments, we forecast a 10% compound annual revenue growth for GE Aerospace through 2035. But that is just the top line.

We appreciate the lean operating methods that CEO Culp and his team have implemented at GE Aerospace. We think these programs, and the rigor with which the team implements them, lend some credibility to the company’s claims that it can achieve ongoing productivity improvements in its manufacturing and service arms. As a result, despite leaner margins from new engines like Leap and GE9X ramping up deliveries from initially unprofitable levels, we forecast a stable operating margin in contracted aftermarket services, and gradually improving profitability in time & materials work as GE benefits from operating leverage and the learning curve in its primary service operations supplying engine parts to the industry. Our aggregate forecast shows commercial aerospace margins approaching 29% in our decade-long forecast period, and defense margins just over 22%. Beyond the medium term, we see potential for further margin expansion, assuming no major disruption to air traffic or the manufacturing supply chain.

The jet engine business is capital-intensive. We forecast ongoing internal investments necessary for the company to pursue promising growth opportunities, including open-fan (CFM Rise) and hybrid electric engines for commercial flight, as well as adaptive engine technology for a next-generation fighter program. Consequently, we expect capital expenditures and research and development spending to total nearly $16 billion over the next 10 years, averaging 3.4% and 6.7% of sales, respectively. Nonetheless, we expect management can readily achieve its goal of 100% free cash flow conversion over the long term, which is reflected in our midcycle projection.

Taken together, our forecasts offer a picture of GE Aerospace generating up to $160 billion of free cash flow over the next decade, most of which the company has pledged to return to investors. Management's stated capital allocation policy will be to return upward of 70% of available cash flow to shareholders, that is, cash flow after research & development and capital expenditures, primarily through stock repurchases and an increasing dividend. Carrying these assumptions forward results in a near-doubling of dividends per share by 2030 from 2025's $1.44 level. Similarly, driven by reduced share count over time, we forecast midteens earnings per share growth after 2030.

We use an 8.7% weighted average cost of capital to discount GE Aerospace’s free cash flows.

We assign GE Aerospace a wide Morningstar Economic Moat Rating based on the customer switching costs stemming from GE’s unmatched installed base of aircraft engines with very long useful lives and intangible assets derived from the complex technical know-how it takes to design, produce, and maintain them. GE Aerospace’s returns on invested capital approached 40% in recent years, more than quadruple our estimate of its 8.7% cost of capital, which we believe it will outearn by a comfortable margin for at least 20 years.

GE currently competes in virtual duopolies in the wide-body and narrow-body jet engine markets against Rolls-Royce and Pratt & Whitney, respectively. Crucial to GE Aerospace’s moat is the fact that turbine engines typically fly for more than 20 years, and the company’s commercial and engine services business (representing about 75% of total revenue) makes 70% of that revenue from servicing engines and selling proprietary replacement parts. This means GE Aerospace alone commands approximately 40% of the global engine maintenance, repair, and overhaul market, using Oliver Wyman’s MRO market forecasts. The result is high visibility into decades of revenue and profit streams for the engine manufacturer.

Most airplanes are powered by only one type of engine. Those that do offer a choice—such as the popular Airbus A320neo, where airlines can choose between Pratt & Whitney’s PW1100 engine or the GE/CFM Leap—are locked into the chosen engine for decades once the plane is configured and delivered. Thus, GE’s customer switching costs result from the strong integration of the engines and their associated equipment into customers’ airframes and maintenance choices.

Risk aversion also plays into customers’ reluctance to switch from a proven engine. In the United States, aircraft engine inspections and maintenance regimes are mandated and regulated by the Federal Aviation Administration. Unplanned downtime related to concerns about an engine’s efficacy can wreak havoc for airlines in terms of time and expense. The high cost of failure ultimately increases customer loyalty to proven platforms, making reliability and predictability key drivers of engine purchase decisions.

Over the last few decades, a growing proportion of jet engines purchased by and for airlines were covered by long-term service contracts, with terms of 10 or more years. Under these contracts, original equipment manufacturers like GE receive regular service payments from the operator based on usage of each engine in exchange for the OEM assuming some or all the cost of scheduled maintenance, parts, and labor. While the contracts are designed to shift the risk of maintenance overages from the airline onto the OEM, they can smooth returns and boost cash flow for the manufacturer, and they solidify switching costs by locking engine maintenance into a given provider over their term.

We believe intangible assets are manifest in the technical knowledge and tooling needed to design and manufacture extensively engineered titanium, ceramic, carbon fiber, and other composite material turbine parts that spin at thousands of revolutions per minute and must regularly and reliably heat up to over 1,000 degrees Fahrenheit. This technical expertise is supported by the firm’s research and development budget, which totaled nearly 8% of aerospace revenue over 2020-24, with approximately half of that funding coming from the US government for future military engines. GE's CF34, CF6, GE90, and CFM56 engines all derived from designs originally made for military aircraft. R&D into new engine design is intended to deliver meaningful performance improvement to the operator to justify adoption. For example, the CFM Leap engine has 6% better utilization and 15% better fuel burn than its CFM56 predecessor. We think GE Aerospace’s status as the premier aircraft engine manufacturer has become self-reinforcing due to the scale the company achieves through market penetration and its ability to reinvest in R&D and apply the resulting know-how over more engine families than any other provider. GE’s operating margins exceed Pratt’s by several percentage points, which demonstrates the scale benefits of having a massive installed base in the aerospace industry.

GE Aerospace’s second reporting business unit, defense and propulsion technologies, includes a mix of businesses that share some of the characteristics of the commercial engines business, but we do not ascribe a wide moat to them. More than half the unit’s revenue comes from providing turbine engines to various military aircraft and some surface naval vessels. These have technical complexity and aftermarket revenue but do not present the volume or scale opportunity that the commercial engine business enjoys. This business also houses GE Aerospace’s version of a “skunkworks,” named after Thomas Edison, which offers a next-generation turboprop engine, additive manufacturing capabilities, and other capabilities generally related to aircraft engine manufacture. Hinging mostly on the defense engines business, we ascribe this business unit, which accounts for 25% of GE Aerospace’s business revenue and one-seventh of profits, a narrow moat.

We identify two remote risks to GE’s moat, which pose a material threat of value destruction and to its franchise but also are so unlikely to materialize within our 20-year forecast horizon that we do not model them. The resulting disruption to the aviation industry and great harm to GE’s reputation of any uncontained failure (i.e. explosion) of a GE engine resulting explicitly from a systemic design or manufacturing flaw that cannot be remedied in the normal course of maintenance or recall would breach GE’s moat, in our opinion. The further possibility that radical technological innovation could make turbine propulsion obsolete, adopted faster than GE can adapt or co-opt it, would also undermine much of the company’s competitive position.

Bears vastly underestimate the incremental profits GE will make from operating leverage as commercial aerospace fully recovers and its Leap engine aftermarket program enters its profitable phase.

The Leap engine is installed on a growing majority of the popular Airbus A320neo family, compounding GE’s prospects for decades of profitable aftermarket revenue from its large installed fleet of engines.

Even the fleet of older engines like the GE90, which went into service in 1995 and powers most Boeing 777s, has yet to see most of its shop visits to GE.

GE is all in on its experimental open-fan Rise design for the next generation of commercial engines, which aircraft makers might, or might not, adopt to propel new jets in the 2040s.

Burgeoning demand for its engines could place GE Aerospace’s manufacturing and supply chain under further disruptive strain, frustrating customers and hampering efficiency.

Engines sold with long-term service contracts effectively transfer risk to the manufacturer for its performance over time, which can result in higher-than-anticipated maintenance costs and dent the profitability of the program.