GE Aerospace (GE) FY2025 Earnings Quality Report

Grade: F — Aerospace Super-Cycle Accrual Pattern Flags the Engine

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-01-29) + Yahoo Finance

Auditor: Deloitte & Touche LLP — Clean opinion

One-line verdict: The newly pure-play GE Aerospace (created in the 2024 separation of GE Vernova and GE HealthCare) reported its best year — revenue +18.5% to $45.85B, operating income +28% to $8.68B, net income $8.70B. Commercial Engines & Services (CES) segment revenue jumped 24% to $33.31B on 2,386 commercial engines delivered (vs 1,911 in 2024) — including 1,802 LEAP engines (vs 1,407). Segment profit margin expanded to 26.6% on $8.86B of segment profit. Services represent 75% of CES revenue, benefiting from internal shop visit revenue growth of 24%. Total Remaining Performance Obligations (RPO) across both segments stand at $190.6 billion — more than four years of current revenue. Yet the screening engine flags three red flags: (1) accounts receivable outpaced revenue growth for 2 consecutive years (A2 fail), (2) operating cash flow has been below net income for 3 consecutive years (C1 fail), which is the only "fail" in the critical cash-flow category that also triggers the F grade, and (3) goodwill plus intangibles of $13.30B equals 71% of shareholders equity of $18.68B (D1 fail). The C1 fail is the most substantive — it reflects legacy separation costs, large gains on sold ownership interests, and the fact that GE Aerospace's "net income" for 2023 ($9.48B) was inflated by one-time separation gains. M-Score of -2.25 sits right at the threshold, and Deloitte disclosed 9 critical audit matter mentions in its audit report — more than typical for a mature industrial.

The Numbers: Aerospace Super-Cycle Running Hot

GE Aerospace operates through two reportable segments: Commercial Engines & Services (CES) and Defense & Propulsion Technologies (DPT). The MD&A describes the business position: "In the narrowbody aircraft market, we are in the midst of a significant ramp in production of the LEAP engine, which entered into service in 2016 and is expected in the coming years to overtake the mature CFM56 as the industry's largest fleet."

Commercial Engines & Services

CES is "approximately 73% of total GE Aerospace revenue" — and services alone represent 75% of CES revenue. This is the crown jewel: a razor-and-blade business where the installed base of engines drives high-margin aftermarket services. The 24% growth in internal shop visit revenue reflects the wave of LEAP engines now coming due for first heavy maintenance.

Defense & Propulsion Technologies

DPT segment margin expanded 110bp to 12.3%. The MD&A highlights: "we announced an Indefinite Delivery/Indefinite Quantity (IDIQ) contract from the U.S. Air Force valued up to $5 billion to support foreign military sales for F110-GE-129 engines, which power F-15 and F-16 aircraft operated by allied nations worldwide. In addition, we received an order from Hindustan Aeronautics (HAL) valued at $1.6 billion for F404-GE-IN20 engines."

RPO — Remaining Performance Obligations

$190.6 billion of contracted future performance obligations is more than 4x current annual revenue. The services RPO of $156.1B alone reflects the unique economics of long-term service agreements — multi-decade revenue streams locked in at the time of engine sale.

Corporate & Other — Where the Non-Operational Items Live

The MD&A's Corporate & Other disclosure is essential to understanding the GE Aerospace post-separation income statement:

The 2023 figure of $3.94B of Corporate & Other "operating profit" is almost entirely the $5.78B gain on retained and sold ownership interests — this is the accounting gain on the distributions of GE HealthCare (2023) and GE Vernova (2024) to GE Aerospace shareholders. It is a one-time, non-cash, non-operating gain that inflated 2023 net income.

This is critical to interpreting the C1 check below. When the screening engine computes CFFO/NI for 3 consecutive years, the denominator for 2023 includes that $5.78B one-time non-cash gain, mechanically pushing the ratio below 1.0 even though the underlying operating cash generation was fine.

Cash Flow

Operating cash flow of $8.54B in 2025 is 81% above 2024's $4.71B — the largest YoY jump in any company in this batch. The improvement came as services grew, working capital normalized after separation-related disruptions, and one-time separation costs declined from $692M (2023) to $202M (2025).

But look at the ratio. 2023 CFFO/NI was 0.55x because 2023 net income included $5.78B of non-cash separation gains. 2024 was 0.72x as $398M of gains and restructuring charges still distorted the ratio. 2025 reached 0.98x — essentially at the 1.0 line. The engine's rule of "CFFO < NI for 3 consecutive years" fires because the ratios are all below 1.0. The underlying cash generation trend is strongly positive; the comparability with GAAP net income is distorted by non-operating gains.

The 18-Point Screening

Revenue Quality

A2 is a red flag. AR went from $6.40B (2023) to $7.38B (2024) to $9.27B (2025) — growth of 15.3% then 25.6% YoY. Revenue growth was 9.5% then 18.5%. AR outpacing revenue in both years trips the 2-consecutive-year threshold.

For a commercial engine maker selling long-dated products, customer payment terms matter enormously. A G90 engine can cost $30M; a shop visit can cost $10M. The AR growth rate reflects scale-up of a genuine ramp — but the engine flags the pattern.

A3 is actually a strong positive: CFFO grew 81% while revenue grew 18.5% — the dramatic cash-flow recovery from post-separation working capital normalization.

Expense Quality

Inventory grew $2.1B to $11.87B — a meaningful increase. The 10-K discloses this is due to ramping production of LEAP engines and inventory being deferred for upcoming service agreements. Not flagged as fraud pattern because gross margin was essentially flat (-0.4pp).

Cash Flow Quality

C1 is a red flag. The engine counts three consecutive years of CFFO/NI below 1.0 (0.55x, 0.72x, 0.98x). The underlying reality: FY2023 and FY2024 net income included substantial non-cash gains from separation accounting — the $5.78B gain on retained ownership interests in 2023 is the biggest example. Strip out those non-recurring items and CFFO exceeds operating cash income in every year. This is an instance where the mechanical rule catches a real pattern (CFFO < reported NI for 3 years) but the underlying interpretation is not an accounting-quality problem — it is an aftermath of the three-way breakup.

C4 is a watch — not a fail. Cash of $12.39B against $20.50B of debt is 60% coverage. This is better than most in this batch (EFX was 4%, FTV was 11%, EMR was 11%). The engine flags it as "watch" rather than "fail" because the ratio is above the 30% threshold that triggers an outright fail.

Balance Sheet Health

D1 is a red flag. Goodwill of $9.06B plus intangibles of $4.23B totals $13.30B against equity of $18.68B — 71%. The goodwill is a legacy of GE's pre-separation era. Post-separation it is now concentrated on a smaller equity base.

The 10-K also discloses that the prior-year Corporate & Other disclosures include "Goodwill impairments (Note 7) $(251)M" in 2023 — so GE Aerospace has already impaired some goodwill.

Acquisition Risk

Beneish M-Score: -2.25 (Right at Threshold)

-2.25 is just 3 basis points below the -2.22 fraud threshold. This is the same tight margin as EMCOR and FIX in this batch. The drivers: high DSRI (AR outpacing revenue), high SGI (rapid revenue growth), and elevated sales-related variables. The Beneish model was built to flag this exact pattern — rapid growth plus receivables buildup — and it is very close to firing.

Altman Z-Score: 3.01 (Just Above Safe Threshold)

Z-Score of 3.01 is just above the 2.90 safe zone threshold. Drivers: moderate working capital (GE Aerospace has significant contract liabilities that reduce working capital), accumulated retained earnings (dented by separation-era restatements), and EBIT/assets of ~9-10%.

Key Risks from the 10-K

1. Macroeconomic & Aerospace Demand Cycle

Item 1A opens: "Our financial performance and growth are subject to risks related to global economic, political and geopolitical developments or other disruptions to the economy or our business. We serve customers in many countries around the world and receive a significant portion of our revenue from outside the United States."

2. Tariffs on Long-Term Service Agreements

The 10-K specifically flags a small but real hit: "an unfavorable change in estimated profitability of our long-term service agreements, primarily from the estimated impact from tariffs." Because LTSAs are recognized using the percentage-of-completion method with total contract profitability estimates, any change in estimated future costs (including tariffs on parts imported for future maintenance work) flows through current-period revenue and profit as an adjustment.

3. Supply Chain and LEAP Production Ramp

The MD&A discloses: "Internal shop visit revenue grew in 2025 compared to 2024 and total engine deliveries and LEAP engine deliveries increased primarily due to improved material supply. We are investing in our manufacturing and overhaul facilities and are deploying engineering and supply chain resources to increase production, expand capacity and strengthen yield." Translation: the LEAP ramp was previously supply-constrained and is still being unblocked. Any single-source supplier outage could set the ramp back.

4. Government Contract Risk (DPT Segment)

Defense & Propulsion Technologies is "approximately 23% of total GE Aerospace revenue" and depends on U.S. Department of War budgets (and allied budgets). The 10-K covers standard government-contract termination-for-convenience risk and FAR/DFARS compliance requirements.

5. Legacy Liabilities

The 10-K discloses: "We retain some legacy business operations related to the Company's long history across many different industries. These include operations related to the Company's former financial services business, including continued exposure to the run-off insurance operations, the mortgage portfolio in Poland (Bank BPH) and certain U.S. tax equity investments."

These legacy liabilities generated $992M of insurance profit in 2025 — but they are also a source of tail risk. Legacy long-term care insurance reserves have historically been a major source of GE charges.

6. Regulatory — FAA/EASA

"The design and production of our commercial aircraft engines are regulated by the U.S. Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA). To obtain and maintain design approvals for commercial engines, called type certificates, we must meet stringent certification requirements and maintain ongoing responsibility for the continued operational safety and airworthiness of our engines."

A single safety issue — as Boeing's 737 MAX door plug experience shows — can ground entire fleets and create multi-year financial impacts.

7. Risks from the Spin-Offs

The 10-K cites "the GE spin-offs" as a named strategic risk category. Transition services agreements, separation cost tail, shared-liability indemnities with GE Vernova and GE HealthCare, and the legal/tax complexity of the three-way breakup all create ongoing risk.

8. 9 Critical Audit Matter Mentions

Deloitte's audit report disclosures include 9 references to critical audit matters — a relatively high count. Typical industrial audit reports have 2-4 CAMs. The higher count reflects complexity from long-term service agreements, insurance reserve estimation, separation accounting, and goodwill impairment testing.

Summary

GE Aerospace's FY2025 10-K shows an aerospace super-cycle firing on all cylinders. Commercial Engines & Services revenue grew 24% to $33.31B with segment margin of 26.6%. Defense & Propulsion Technologies grew 11% with margin expansion to 12.3%. Commercial engine deliveries reached 2,386 units with LEAP at 1,802. Remaining performance obligations are $190.6 billion. Operating cash flow rebounded 81% to $8.54B. Free cash flow was $7.26B.

Three red flags — all with narrative explanations but mechanically real:

Plus one watch: C4 — cash 60% of debt. Not as severe as most in this batch.

M-Score -2.25 is only 3 basis points from the threshold — driven by rapid AR growth (DSRI), strong sales growth (SGI), and related variables.

Things working: $190.6B RPO, 26.6% CES segment margin, 24% CES revenue growth, 1,802 LEAP deliveries, CFFO +81% YoY, FCF $7.26B, Altman Z 3.01 (safe), services at 75% of CES revenue creating a long-duration recurring revenue base.

Things to watch: The M-Score proximity to threshold, legacy insurance liabilities and spin-off indemnities, tariff-driven LTSA profitability adjustments, the commercial aircraft demand cycle (particularly for widebody platforms), and the 9-CAM Deloitte audit report indicating unusual audit complexity.

Bottom line: GE Aerospace has genuinely strong operating fundamentals and a cleaner pure-play narrative than legacy GE ever provided. The F grade reflects three mechanical screening fails — two of which (A2 and C1) have defensible non-manipulation explanations tied to the separation accounting and the engine production ramp. But the C1 fail is the most substantive because it spans three years. Investors should understand that 2025's 0.98x ratio is effectively normalized and the structural services-heavy business model is cash-generative. The screening engine is being appropriately conservative; the underlying business looks solid.

**Disclaimer**: This report is based on GE Aerospace's FY2025 10-K (SEC EDGAR) and public financial data. It uses forensic accounting screening frameworks (Schilit's *Financial Shenanigans*, Beneish M-Score, Altman Z-Score) for red flag detection. This is NOT investment advice. Screening for red flags does not constitute a buy or sell recommendation. Past financial performance does not predict future results. Always do your own research and consult a qualified financial advisor.

**About EarningsGrade**: We screen earnings reports to help investors identify financial red flags. Our approach: "Screen out, not screen in." A passing grade means no red flags were detected — it does not mean the stock is a good investment.