⚠ A Fleet Priced Before Anyone Knew How It Would WearModerate threat

GE Aerospace (GE) — threat to the moat

A contract signed in 2018 on assumptions made in 2016 governs revenue being recognised today.

The uncomfortable part of a razor-and-blade model is that the blades are priced at the moment the razor is sold, which for a jet engine is up to twenty-five years before the last blade is consumed.

Long-term service agreement liabilities, in $m8,994202410,01620252,374LTSA contractassets 20242,792LTSA contractassets 2025Two consecutive years of unfavourable changes in estimated profitability have been disclosed.
A contract signed in 2018 on assumptions made in 2016 governs revenue being recognised in 2026.

GE Aerospace signs long-term service agreements with terms generally ranging from ten to twenty-five years, and recognises revenue on percentage of completion using estimates of how the customer will use the assets, the expected timing and extent of future overhauls, and future costs of materials and labour1. For an engine type with decades of service history those estimates are well grounded. For the LEAP, which entered service in 2016 and met operating conditions harsher than its early configuration handled well, they were made before the evidence existed.

The company has had to revise them. In 2025 it recorded an unfavourable change in the estimated profitability of its long-term service agreements, primarily from the estimated impact of tariffs2, and in the first half of 2026 net unfavourable changes in estimated profitability on long-term service contracts again moved the accounts, mainly related to tariffs3. Long-term service agreement liabilities stood at $10,016 million against $8,994 million a year earlier4.

What cuts the other way is that the durability programme improves these contracts rather than harming them: under an agreement where GE bears the overhaul cost, an engine that stays on the wing longer is a cheaper contract. The LEAP-1B durability kit with its roughly two-times time-on-wing improvement5 is, in that accounting, a margin gain.

So the exposure is not that the LEAP is a bad engine. It is that a contract signed in 2018 on assumptions made in 2016 governs revenue being recognised in 2026.

What to watch is the language rather than a number: the frequency of disclosed changes in estimated profitability on long-term service agreements. Two consecutive years of unfavourable revisions have now been disclosed. A third, not attributable to tariffs, would say the pricing was wrong rather than the environment.

References
  1. ReportedGE Aerospace signs long-term service agreements with terms generally ranging from ten to twenty-five years, and recognises revenue on percentage of completion using estimates of how the customer will use the assets, the expected timing and extent of future overhauls, and future costs of materials and labour.
    GE Aerospace Form 10-K, FY2025 - Report of Independent Registered Public Accounting Firm — the critical audit matter on revenue recognition for certain Aerospace long-term service agreements, which notes that the agreements generally range from 10 to 25 years, that revenue is recognised on the percentage-of-completion method, and that the key assumptions requiring significant management judgement are customer utilisation, the expected timing and extent of future overhaul services, future costs of materials and labour, and forward-looking information. — FY2025 · publ. January 2026 · source ↗
  2. ReportedIn 2025 it recorded an unfavourable change in the estimated profitability of its long-term service agreements, primarily from the estimated impact of tariffs, and in the first half of 2026 net unfavourable changes in estimated profitability on long-term service contracts again moved the accounts, mainly related to tariffs.
    GE Aerospace Form 10-K, FY2025 - Segment Operations — Commercial Engines & Services: segment revenue, profit and margin, commercial engine and LEAP unit deliveries, internal shop visit revenue growth, the CES remaining performance obligation, the 2025 engine commitments from Qatar Airways, Emirates, International Airlines Group, ANA Holdings, Malaysia Aviation Group, Korean Air, Cathay Pacific and Pegasus, and commercial departures growth. — FY2025 · publ. January 2026 · source ↗
  3. ReportedIn 2025 it recorded an unfavourable change in the estimated profitability of its long-term service agreements, primarily from the estimated impact of tariffs, and in the first half of 2026 net unfavourable changes in estimated profitability on long-term service contracts again moved the accounts, mainly related to tariffs.
    GE Aerospace Form 10-Q for the quarter ended June 30, 2026, Management's Discussion and Analysis — consolidated revenue, profit and earnings per share, the segment results for Commercial Engines & Services and Defense & Propulsion Technologies, commercial engine and LEAP unit deliveries, internal shop visit revenue growth, the remaining performance obligation and its equipment and services split, the supply chain, tariff and Middle East discussions, and the planned $1 billion US manufacturing investment and 5,000 US hires. — Q2 2026 · publ. July 2026 · source ↗
  4. ReportedLong-term service agreement liabilities stood at $10,016 million against $8,994 million a year earlier.
    GE Aerospace Form 10-K, FY2025 - notes to the consolidated financial statements — the segment note including segment expenses, segment profit and other segment income; contract assets, contract liabilities and long-term service agreement balances; the remaining performance obligation note with its expected recognition schedule; goodwill and intangible assets; and the geographic revenue table. — FY2025 · publ. January 2026 · source ↗
  5. ReportedThe LEAP-1B durability kit with its roughly two-times time-on-wing improvement is, in that accounting, a margin gain.
    GE Aerospace second-quarter 2026 earnings release (Exhibit 99.1 to Form 8-K of July 16, 2026) — total company GAAP and non-GAAP results, segment revenue, orders and operating profit, free cash flow, the raised full-year 2026 guidance for adjusted revenue growth, operating profit, adjusted earnings per share and free cash flow, the LEAP-1B durability kit certification, the XA102 and GE426 defence programmes, the NASA hybrid-electric ground tests, and the chief executive's commentary. — Q2 2026 · publ. 16 July 2026 · source ↗
Sources
Generated September 23, 2026