GE Aerospace

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 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, 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.

GE Aerospace increased its mid-term targets based on continually higher utilization of the CFM56 platform. This comes alongside a successful business model transformation and a period of strong cash-flow harvesting period.

We initiated a position in GE Aerospace based on its durable competitive advantages, anchored by its dominant market share in commercial and military aircraft engines—powering over 60% of the global narrowbody fleet through its joint ventures and proprietary platforms. Its strong aftermarket business, with long-term maintenance contracts and a growing installed base, provides a recurring revenue stream that buffers against cyclicality. The company’s leadership in high-bypass turbofan technology and its ability to scale production efficiently have fortified its position, especially as airlines prioritize engine reliability and fuel efficiency. Looking forward, the company is poised for continued growth across commercial aviation, defense, and emerging hybrid-electric propulsion.

We initiated a position in GE Aerospace based on its durable competitive advantages, anchored by its dominant market share in commercial and military aircraft engines—powering over 60% of the global narrowbody fleet through its joint ventures and proprietary platforms. Its strong aftermarket business, with long-term maintenance contracts and a growing installed base, provides a recurring revenue stream that buffers against cyclicality. The company’s leadership in high-bypass turbofan technology and its ability to scale production efficiently have fortified its position, especially as airlines prioritize engine reliability and fuel efficiency. Looking forward, the company is poised for continued growth across commercial aviation, defense, and emerging hybrid-electric propulsion.

We initiated a position in GE Aerospace based on its durable competitive advantages, anchored by its dominant market share in commercial and military aircraft engines—powering over 60% of the global narrowbody fleet through its joint ventures and proprietary platforms. Its strong aftermarket business, with long-term maintenance contracts and a growing installed base, provides a recurring revenue stream that buffers against cyclicality. The company’s leadership in high-bypass turbofan technology and its ability to scale production efficiently have fortified its position, especially as airlines prioritize engine reliability and fuel efficiency.