GE Aerospace

GE Aerospace was a significant contributor during the second quarter as investors gained confidence that its multi-year earnings trajectory remains intact despite geopolitical uncertainty and ongoing supply chain constraints. Strong execution, continued strength in the commercial aerospace aftermarket, and improving defense demand more than offset concerns surrounding the brief U.S.-Iran conflict. Elevated fleet utilization drove increased demand for maintenance, repair, and overhaul services, supporting GE Aerospace's highest-margin businesses. The quarter reinforced that commercial aerospace remains in the early-to-middle stages of a multi-year aftermarket upcycle, fueling elevated engine flight hours and robust spare parts consumption. We continue to view GE Aerospace as a high-quality industrial business positioned to deliver sustained revenue growth, margin expansion, and free cash flow.

We initiated a new position in GE Aerospace, which we view as one of the highest-quality industrial businesses in the world. Following the multi-year separation of the former GE conglomerate, investors can now own GE Aerospace as a standalone company focused almost entirely on aircraft engines and related services. GE commands a dominant position in commercial jet engines, operating in a global oligopoly alongside Safran, Rolls-Royce, and Pratt & Whitney. The company’s engines power roughly three out of every four commercial flights globally, supported by an installed base of approximately 50,000 engines and a backlog of roughly $190 billion. We believe GE Aerospace can potentially grow revenues at a double-digit annual rate with margin expansion supported by operating leverage and the mix shift toward aftermarket services.

GE Aerospace (GE) was a significant contributor during the second quarter as investors gained confidence that its multi-year earnings trajectory remains intact despite geopolitical uncertainty and ongoing supply chain constraints. Strong execution, continued strength in the commercial aerospace aftermarket, and improving defense demand more than offset concerns surrounding the brief U.S.-Iran conflict. Elevated fleet utilization drove increased demand for maintenance, repair, and overhaul (MRO) services, spare parts, and engine shop visits, supporting GE Aerospace's highest-margin businesses. We continue to view GE Aerospace as a high-quality industrial business positioned to deliver sustained revenue growth, margin expansion, and free cash flow.

GE Aerospace was a significant contributor during the second quarter as investors gained confidence that its multi-year earnings trajectory remains intact despite geopolitical uncertainty and ongoing supply chain constraints. Strong execution, continued strength in the commercial aerospace aftermarket, and improving defense demand more than offset concerns surrounding the brief U.S.-Iran conflict. Elevated fleet utilization drove increased demand for maintenance, repair, and overhaul (MRO) services, spare parts, and engine shop visits, supporting GE Aerospace's highest-margin businesses. We continue to view GE Aerospace as a high-quality industrial business positioned to deliver sustained revenue growth, margin expansion, and free cash flow.

GE Aerospace was a significant contributor during the second quarter as investors gained confidence that its multi-year earnings trajectory remains intact despite geopolitical uncertainty and ongoing supply chain constraints. Strong execution, continued strength in the commercial aerospace aftermarket, and improving defense demand more than offset concerns surrounding the brief U.S.-Iran conflict. Elevated fleet utilization drove increased demand for maintenance, repair, and overhaul services, supporting GE Aerospace's highest-margin businesses. We continue to view GE Aerospace as a high-quality industrial business positioned to deliver sustained revenue growth, margin expansion, and free cash flow.

GE Aerospace continued to benefit from favorable aerospace fundamentals, contributing positively to our portfolio's performance. The company is positioned well within the aerospace sector, which is experiencing significant growth and transformation. This aligns with our investment philosophy that emphasizes businesses with improving returns on capital and accelerating earnings revisions. We remain optimistic about GE Aerospace's ability to capitalize on these trends, reinforcing our decision to increase our position in the company.

GE Aerospace reported an outstanding set of results across all business lines. Commercial Engines & Services grew impressively on the back of strong engine deliveries. Momentum in the Defense business was also positive, with the division now boasting a book-to-bill ratio in excess of 2x. The stock has de-rated despite becoming fundamentally even stronger, and we are taking the opportunity to build a position.

GE Aerospace, a pure-play peer to HONA, currently trades at 26x this year’s EBITDA. While GE has more aftermarket and services exposure, HONA’s defense business provides upside optionality across military platforms that are less reliant on commercial aerospace. If HONA trades at a modest discount to GE, and the remaining automation business trades in-line with peers like Emerson or Rockwell, there remains substantial upside in the stock. Lastly, HON owns a majority stake in Quantinuum, a leading quantum computing company which raised capital at a $10bn valuation last year.

We added to our holdings in GE Aerospace (GE) during the quarter, reflecting our confidence in its operational strength and guidance. Despite a temporary slowdown in aftermarket growth due to inventory adjustments, we expect this to subside over the next several quarters. The company is well-positioned to benefit from a return to high single-digit aftermarket growth as year-over-year comparisons ease. Additionally, Q2 bookings are tracking ahead of schedule, indicating that underlying demand remains intact, which supports our bullish outlook on GE Aerospace.

The letter discusses the performance of the Core Portfolio and mentions GE Aerospace among other holdings. However, it does not provide a specific argument or directional stance regarding GE Aerospace itself. The focus is on broader themes affecting the portfolio rather than on GE Aerospace as an individual investment.