Episode summary
GE Aerospace: The Ultimate Compounder?
The Intrinsic Value Podcast
· · Hosts: Daniel Mahncke, Shawn O'Malley
Summary
GE Aerospace is presented as the highest-quality business in aviation, even compared with Heico and TransDigm, because it combines huge scale, a deep installed base, and a long-duration aftermarket stream. The hosts argue that the real economics come not from selling engines up front, but from decades of maintenance, repairs, and overhaul tied to those engines once they are locked into aircraft programs and certified by regulators.
The episode traces GE’s aerospace roots back to 1917 and shows how war, regulation, and scale helped create a durable moat. The commercial side is described as the core profit engine: roughly three quarters of revenue and almost 90% of profit come from commercial aviation, with the LEAP engine on the 737 Max and A320neo especially important. The hosts say GE controls about 40% of the global MRO market and roughly three quarters of the market on the most important narrowbody aircraft, while the aftermarket can produce about three and a half times the original revenue over an engine’s life.
The discussion also contrasts GE’s history under Jack Welch and Jeff Immelt with the turnaround under Larry Culp. Culp is credited with simplifying the business, spinning off Healthcare and Vernova, and refocusing GE on aerospace. The main concern raised is valuation: the stock is viewed as excellent but expensive, with the hosts questioning whether recent buybacks have been done at too high a price.
Key takeaways
- The hosts argue GE Aerospace is the best business in the aviation value chain because its profits come mainly from a captive aftermarket, not the initial engine sale.
- GE’s commercial engine business is said to generate more than 70% of revenue from services and about 27% segment margins, with ROIC near 40% in recent years.
- The LEAP program is a key growth driver, with more than 10,000 engines delivered and another backlog the hosts estimate could keep production busy well into the early 2030s.
- Larry Culp is credited with rescuing GE, splitting it into three companies, and turning GE Aerospace into the leftover crown jewel.
- The hosts worry the stock is expensive at around 40 times free cash flow, making recent buybacks look less attractive than the underlying business quality.
Notable quotes
“GE Aerospace really is the pinnacle of quality in that industry and it's definitely valued that way, too, though”
“the higher the cost of failure, the more loyal customers tend to be to proven systems and products”
“So the default is to go with parts from the engine maker, which in most cases is GE”
“GE's engine, for example, has done more than 30,000 test cycles, and it's still losing money for them”
How the episode opens
Chris Hohn has completely crushed the market for more than two decades now, and I feel like he just sneaked up the ladder of the best investors of all time without being in the media a lot. — What I love about him is his relentless focus on buying only the best companies in the world. And many investors claim to do that, but very few follow up on that promise in the way that he does.
He's so good at spotting these exceptional businesses before the market realizes that they are actually the best in the world at what they do. And today we talk about a holding that is an insane 30% of his $50 portfolio, and the company is GE Aerospace.
Welcome back to The Investors Podcast episode 854. And in our last episode, Sean, I pitched LVMH and Hermes to you, two incredible businesses that are currently struggling mainly because of the macro environment globally and then especially in China. And I would um you personally that today's business is even higher quality than those two, which is definitely not easy.
No, it's not easy to do. And And we'll be talking about GE Aerospace, which is actually the biggest position in Sir Christopher Hohn's portfolio. And Chris Hohn is probably one of the top 10 investors of all time, truly. Uh delivered roughly 20% annual returns for over two decades now.
We actually got a lot of heat for skipping him in one of our latest YouTube live streams where we basically ranked investors in the world, but you don't have to worry. Eventually, there will be a part two, and we'll definitely not disrespect Hohn like that again.
There's just so many great investors to include. You can't give them all the proper shout-out that they deserve.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- aerospace monopoly
- aftermarket demand
- ceo turnaround
- intrinsic value valuation
- stock portfolio addition
Companies and tickers mentioned
- GE
- TDG
- HEI
- HEI-A
- CPA
- GE Aerospace
- TransDigm
- HEICO
- Copa Holdings
Watch the episode
Watch “GE Aerospace: The Ultimate Compounder?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Intrinsic Value Podcast, this episode and its artwork belong to The Investor's Podcast Network. Octagon is not affiliated with the show; this page is an independent summary.
