Global Decarbonization And Geopolitical Strife Will Undermine Aerospace Margins

Key Takeaways

• Regulatory and technological shifts threaten GE's jet engine business, exposing it to declining demand and risks from alternative propulsion and stricter climate policies.
  
• Heavy reliance on commercial aerospace makes GE vulnerable to global travel downturns, supply disruptions, and ongoing financial and operational constraints.
  
• Strong demand in commercial and defense aerospace, tech leadership, and operational efficiencies drive recurring revenue growth, robust margins, and multi-year earnings stability.

Catalysts

General Electric Company, doing business as GE Aerospace, designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems.

• The risk of accelerated global decarbonization initiatives and increasingly stringent climate policies could result in direct restrictions or taxes on fossil-fuel-based air travel, severely undermining the long-term demand for GE's jet engines, aftermarket services, and next-generation programs, pressuring both revenue growth and the sustainability of high-margin service streams.
  
• Heightened geopolitical tensions and rising protectionist policies now threaten to upend previously tariff-free aerospace trade, disrupting essential cross-border supply chains and sparking reciprocating tariffs that will introduce persistent cost headwinds, reduce pricing flexibility, and compress net margins for years to come.
  
• The rapid advancement of alternative propulsion technologies, such as electric and hydrogen engines, poses an existential threat to GE's traditional jet engine business model; the company's significant capital commitments to current product lines and slower adaptability put future revenue growth and long-term earnings at risk as customer adoption of new technologies accelerates.
  
• Continued high dependence on a single end-market-commercial aerospace-leaves GE extremely exposed to any secular decline in global air travel patterns; prolonged stagnation or contraction in departures would create persistent revenue and earnings volatility, especially as key backlog conversion is already lagging amid supply chain and macroeconomic headwinds.
  
• Persistent complexity and capital intensity, alongside potential legacy liabilities and underfunded pension obligations, continuously drain free cash flow, hinder margin expansion, and reduce capital available for reinvestment-setting up a scenario where cost overruns and balance sheet burdens dramatically limit GE's long-term competitiveness and shareholder returns.

General Electric Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on General Electric compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming General Electric's revenue will grow by 5.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.4% today to 14.9% in 3 years time.
• The bearish analysts expect earnings to remain at the same level they are now, that being $6.9 billion (with an earnings per share of $6.76). The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 35.9x on those 2028 earnings, down from 41.2x today. This future PE is greater than the current PE for the GB Aerospace & Defense industry at 34.2x.
• Analysts expect the number of shares outstanding to decline by 1.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

General Electric Future Earnings Per Share Growth

Risks

• Sustained long-term growth in global air travel, evidenced by continued strong orders and a $170 billion backlog, supports recurring revenues and stable service demand, which can result in higher revenue and stable earnings over the coming years.
  
• Continued investment in next-generation technology and R&D, such as the RISE program and LEAP engine upgrades, positions GE Aerospace strongly for future engine platform leadership, enabling the company to maintain premium pricing and improve operating margins.
  
• Increasing global defense budgets and GE's success in winning major government contracts, including a $5 billion U.S. Air Force contract and robust international defense demand, create additional multi-year visibility and growth, supporting both top-line revenue and profit growth.
  
• The company's sharpened focus, operational efficiency initiatives (like FLIGHT DECK), and efficiency improvements following the spin-offs contribute to rising margins and earnings quality, as reflected by strong margin expansion and EPS outperformance.
  
• The consistent growth in long-term service agreements and the expansion of the external shop visit network are providing stable, high-margin aftermarket revenues, which underpin multi-year cash flow stability and margin enhancement for GE Aerospace.

Valuation

• The assumed bearish price target for General Electric is $198.4, which represents two standard deviations below the consensus price target of $260.71. This valuation is based on what can be assumed as the expectations of General Electric's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $196.11.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $46.4 billion, earnings will come to $6.9 billion, and it would be trading on a PE ratio of 35.9x, assuming you use a discount rate of 7.2%.
• Given the current share price of $266.18, the bearish analyst price target of $198.4 is 34.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.