The Engine Is Sold at a LossWide moat

GE Aerospace (GE) — moat facet

Four consecutive years of negative equipment gross margin, against a services margin that has risen every year to forty-five per cent.

Most companies would treat a negative gross margin on their flagship product as an emergency. GE Aerospace has run one for four years and its share price has tripled.

Gross margin by line, per cent-0.7%Equipment 2024-1.8%Equipment 202543.8%Services 202445.0%Services 2025Bars show magnitude; the equipment labels carry the sign. Four consecutive years of equipment losses.
The razor is priced below cost and the blade earns forty-five cents on the dollar.

The figures are audited and they are not close. Equipment sales and the cost of that equipment: $7,837 million against $8,151 million in 2022, $9,318 million against $9,900 million in 2023, $10,274 million against $10,341 million in 2024, and $12,159 million against $12,382 million in 20251. Services over the same four years went from a 40.9% gross margin to 45.0%2.

The reason is that the two lines are the same transaction seen at different moments. An engine installed on a new aircraft today will be overhauled several times over the next twenty-five or thirty years, and every one of those shop visits, and every spare part consumed in them, belongs to the manufacturer. Selling the engine cheaply buys a position on the wing; the position on the wing is what is actually being sold.

What makes the trade safe is that the customer cannot undo it. An engine is certified to an airframe as a unit. Changing it means re-certifying the aircraft, which no airline does. The parts that keep it airworthy are approved for that engine type. The manuals, the tooling and the repair procedures are licensed. So the aftermarket is not won in competition each year; it is a consequence of a decision taken when the aircraft was ordered.

The scale of what has been banked is in the backlog: $163,029 million of contracted services revenue at the end of 2025 against $30,163 million of services revenue in the year3. And the run-off schedule shows how slowly it releases — twelve per cent within a year, forty-two within five, sixty-nine within ten, eighty-six within fifteen4.

There is a real cost to the model and it is visible right now. Every additional engine delivered is a loss recognised immediately against an annuity recognised later, so a production ramp mechanically depresses the margin. GE Aerospace said exactly that about the June 2026 quarter: commercial margins contracted 160 basis points from install engine growth, investment and inflation5.

Watch the gap between the two gross margins. Equipment at roughly minus two per cent and services at forty-five is the model working. If the services margin starts falling toward the equipment margin, the blades have stopped being scarce.

Moat trajectory: Holding steady

The structure has not changed and does not need to: equipment at a gross loss, services at forty-five per cent, four years running. The services margin is improving and the durability programme will reduce shop visits per engine from 2027, and those two effects broadly offset. This is a mechanism rather than a trend.

The number that tests this moat
Moat Explorer calc
Equipment gross margin against services gross margin
about -1.8% against 45.0%

Equipment has been sold at a gross loss in each of the last four years, cumulatively about $1.2 billion, while the services gross margin rose from 40.9% in 2022 to 45.0% in 2025. If the services margin starts falling toward the equipment margin, the blades have stopped being scarce.

Source: Moat Explorer calculation from GE Aerospace's filings ↗
Aspects of the moat
DIG DEEPER 01
Four Years of Selling Engines Below Cost
A company that earned $10 billion before tax reports its flagship product at a gross loss, on purpose, in the audited accounts.
DIG DEEPER 02
Forty-Five Cents on the Services Dollar
The only half of the business nobody can bid for, and its margin has improved in every year on record.
DIG DEEPER 03
The Certification Nobody Can Shortcut
There are three companies able to build a large commercial turbofan, and the number has not changed in forty years.
DIG DEEPER 04
Two Point One Times Time-on-Wing
The durability upgrade is right for the customer and removes the event that generates the margin.
⚠ Threats to the moat
⚠ THREAT 01
A Production Ramp Is a Margin Problem
The June quarter's margin fell 160 basis points because the company sold more engines — which is the model working, not failing.
⚠ THREAT 02
The Structure Only Works If Aircraft Keep Flying
The aftermarket is a claim on flight hours, and flight hours are cyclical, political and occasionally grounded.
References
  1. Moat Explorer calcEquipment sales and the cost of that equipment: $7,837 million against $8,151 million in 2022, $9,318 million against $9,900 million in 2023, $10,274 million against $10,341 million in 2024, and $12,159 million against $12,382 million in 2025.
    Moat Explorer calculation from GE Aerospace's reported figures. Equipment gross margin: sales of equipment less cost of equipment sold was $(314)M in 2022, $(582)M in 2023, $(67)M in 2024 and $(223)M in 2025, about $1.2 billion cumulatively, and about -1.8% of equipment sales in 2025 against -0.7% in 2024. Services gross margin: (18,345-10,836)/18,345 = 40.9% in 2022, 42.4% in 2023, 43.8% in 2024 and (30,163-16,586)/30,163 = 45.0% in 2025. Services RPO of $163,029M against services revenue of $30,163M is 5.4 years, and $163,029M of $190,564M is 86%. LEAP deliveries of 1,570 + 1,407 + 1,802 + 1,030 in the first half of 2026 total 5,809 since the start of 2023. LEAP was 1,802 of 2,386 commercial engines in 2025, 75.5%. — FY2022-FY2026 · publ. September 2026 · source ↗
  2. Moat Explorer calcServices over the same four years went from a 40.9% gross margin to 45.0%.
    Moat Explorer calculation from GE Aerospace's reported figures. Equipment gross margin: sales of equipment less cost of equipment sold was $(314)M in 2022, $(582)M in 2023, $(67)M in 2024 and $(223)M in 2025, about $1.2 billion cumulatively, and about -1.8% of equipment sales in 2025 against -0.7% in 2024. Services gross margin: (18,345-10,836)/18,345 = 40.9% in 2022, 42.4% in 2023, 43.8% in 2024 and (30,163-16,586)/30,163 = 45.0% in 2025. Services RPO of $163,029M against services revenue of $30,163M is 5.4 years, and $163,029M of $190,564M is 86%. LEAP deliveries of 1,570 + 1,407 + 1,802 + 1,030 in the first half of 2026 total 5,809 since the start of 2023. LEAP was 1,802 of 2,386 commercial engines in 2025, 75.5%. — FY2022-FY2026 · publ. September 2026 · source ↗
  3. ReportedThe scale of what has been banked is in the backlog: $163,029 million of contracted services revenue at the end of 2025 against $30,163 million of services revenue in the year.
    GE Aerospace Form 10-K, FY2025 - Management's Discussion and Analysis — consolidated results, profit and operating profit margins, adjusted earnings per share, total remaining performance obligation and its year-on-year movement, cash flow from operations and free cash flow, the share repurchase programme, borrowings and the financing-arrangement discussion. — FY2025 · publ. January 2026 · source ↗
  4. ReportedAnd the run-off schedule shows how slowly it releases — twelve per cent within a year, forty-two within five, sixty-nine within ten, eighty-six within fifteen.
    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. ReportedGE Aerospace said exactly that about the June 2026 quarter: commercial margins contracted 160 basis points from install engine growth, investment and inflation.
    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