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General Electric (GE 1.14%)
Q1 2024 Earnings Call
Apr 23, 2024, 7:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the GE Aerospace first-quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator for today. [Operator instructions] As a reminder, this conference is being recorded.
I would now like to turn the program to your host for today's conference, Steve Winoker, vice president of investor relations. Please proceed.
Steve Winoker -- Vice President, Investor Relations
Thanks, Liz. Welcome to GE Aerospace's first-quarter 2024 earnings call. I'm joined by chairman and CEO, Larry Culp; and CFO, Rahul Ghai. Many of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today.
As described in our SEC filings and website, those elements may change as the world changes. With the spinoff of GE Vernova successfully completed earlier this month, GE Vernova will report its results separately on April 25th. While included in our first-quarter consolidated results, we're focusing today's commentary and Q&A primarily on GE Aerospace. Now, over to Larry.
Larry Culp -- Chairman and Chief Executive Officer
Steve, thank you, and good morning, everyone. Welcome to our first earnings call as GE Aerospace, now a pure-play global leader in propulsion services and systems. We're wholly focused on our aerospace and defense customers serving the 900,000 passengers in the air right now with our technology underwing. It's an incredible responsibility for our teams globally and why we take safety and quality so seriously.
We'll come back to GE Aerospace in a moment, but before we do, we'll talk about GE on a consolidated basis, which is how we operated for the first few months of this year. Just three weeks ago, on April the 2nd, we completed GE Vernova's spin and launched GE Aerospace, ringing the bell at the New York Stock Exchange after the successful spin of GE Healthcare last year. It was a proud moment that we celebrated with our teams around the world. This marked a new beginning following the completion of GE's multiyear transformation that strengthened our businesses both financially and operationally. Thanks to the GE team, we significantly improved our financial position, reducing debt by more than $100 billion since 2018 and enhance our operational execution by embracing lean with a relentless focus on safety, quality, delivery, and cost, in that order, to better serve our customers.
Together, we built a strong foundation for our three independent companies that, to date, have increased shareholder value nearly fivefold. Now, GE begins again, three industry leaders fit for purpose for the next century plus and ready to put their stamps on the world. GE Healthcare, GE Vernova, and GE Aerospace each carry forward GE's innovative spirit, customer focus, and passion to build a world that works, fully focused on their respective missions to lead precision health, the energy transition, and the future of flight. None of this would have been possible without the important work of our teams. I want to express again my sincere gratitude to our incredible people, whose unmatched passion and talent have made this achievement possible. Thank you.
We turn to Slide 4. We had an exceptionally strong last quarter as GE. In the first quarter, orders were up substantially in both GE Aerospace and Power. Revenue was up 10% organically with all segments contributing to the growth. And equipment and services were up across both GE Aerospace and GE Vernova.
Adjusted operating profit was $1.5 billion, up more than $600 million with 300 basis points of organic margin expansion. This was largely driven by pricing and volume, which more than offset investments and inflation. Adjusted EPS was $0.82, up more than three times year over year. And free cash flow was $850 million, up more than five times, or $700 million, driven by higher earnings and continued reduction in working capital. In all, a very strong performance for GE, reflecting real momentum at both GE Aerospace and GE Vernova.
And now, the day has come where we bring our full focus to GE Aerospace. Our commercial propulsion fleet is the industry's largest and youngest, thanks to our world-class engineering and services teams. And in defense, we're proud to be the rotorcraft and combat engine provider of choice, powering two-thirds of these aircraft worldwide, a massive part of our businesses and aftermarket services, representing 70% of our $32 billion in revenue. Importantly, as we meet higher levels of demand today, services enable us to better understand how our technologies are performing, and we use that intelligence to help shape our future product road maps. Turning to our performance. GE Aerospace had a solid start to the year.
In the first quarter, we delivered double-digit revenue and profit growth, as well as margin expansion in both businesses, with free cash flow doubling year over year. Overall, we have great confidence in our forward trajectory for raising our full-year operating profit guidance and see a path to our $10 billion operating profit target by 2028. Turning to Slide 6. As you heard from us last month at our Investor Day, we're keeping our strategy simple: Focused on today, tomorrow, and the future with safety and quality first. Enter FLIGHT DECK, our proprietary lean operating model to ensure focused execution as a public company.
Fundamentally, it's a systematic approach to running our businesses to deliver exceptional value as measured through the eyes of our customers, and it's the best way we know to operationalize flight safety at GE Aerospace, in combination with our safety and quality management systems. Starting with today, we're focused on service and readiness, keeping our customers' fleets flying. We're experiencing a tremendous demand cycle for services as more people fly and fly more often. In the quarter, GE/CFM departures were up low double digits and were revising our expectations upward for the year. The onus is on us to meet this demand, and with FLIGHT DECK, we're maintaining the highest standards of safety and quality with greater predictability and speed. Easy to say, hard to do.
A key priority in our services business is improving turnaround times to increase our shop visit output. We're making progress with LEAP, a significant driver of shop visit growth this year. For example, at our Malaysia site, a joint GE Aerospace and Safran team collaborated to reduce average LEAP test cell hours by 30% for engine, and they're working toward a 50%-plus improvement by year-end. As a result, the team has closed 95% of a 100-engine gap in test capacity so far while optimizing LEAP baseline test time, eliminating interruptions and reducing network variation. Actions like these are improving our shop turnaround time, which, for LEAP, was down approximately -- or down to approximately 90 days this quarter, a 10% reduction, versus our roughly 100-day average last year. While there's more work to do, we're focused on getting engines back in the hands of our customers faster without compromising safety or quality.
For tomorrow, we remain focused on delivering on the ramp. This quarter, total engine deliveries improved, up 9% year over year, including defense up over 50%. However, these deliveries were short of our objectives due largely to continued material availability challenges. Thus, we have intensified our efforts working with our suppliers to problem solve these issues. Here is where FLIGHT DECK is key.
Currently, we can track about 80% of our largest delivery challenges back to 15 supplier sites. We're deploying more than 550 engineers and supply chain resources, up 25% from last year., working with them to improve quality and delivery performance. For example, we're problem-solving with -- with one of our tier 1 suppliers by going to gemba at their most constrained supplier. We are shoulder to shoulder with them, leveraging FLIGHT DECK and working together to identify and break constraints such as labor shortfalls, manufacturing yield issues, identifying alternate material types for raw material shortages, and improving flow and lead times. As a result, that constrained supplier recently improved output by more than 25% and is no longer pacing deliveries.
We also recently announced we're investing more than $650 million in both our manufacturing facilities and our supply chain this year, reflecting our commitment to strengthening quality and increasing production to better support our customers' long-term needs. At the same time, both airlines and our defense customers are expanding and modernizing their fleets and choosing to do so with us, adding to our $150 billion-plus backlog and continuing to build our installed base of engines and services. At the Singapore Air Show, Thai Airways committed to powering its new widebody fleet of Boeing 787 aircraft with our GEnx-1B engines. The GEnx is now a cornerstone of the airline's long-term plan to open new markets and meet surging demand while working to achieve its environmental goals. American Airlines secured 85 new Boeing 737MAX jets, which will be powered by our LEAP-1B.
And easyJet made a commitment for more than 300 LEAP-1A engines for its fleet of 157 A320neo aircraft. In our defense and propulsion technologies business, we won a new order for F414 engines to power additional KF-21 fighter jets for the Korean Air Force, continuing to build our international business. And for the future. we're advancing the technology building blocks that will define the future of flight with more than $2 billion of R&D spending this year.
For example, we're continuing to make progress with testing in our CFM RISE program. We completed our first fan ingestion test with our full-scale RISE fan blade, and the results were extremely encouraging. On the defense side, in partnership with Sikorsky Innovations, our team is finalizing designs for a hybrid electric power systems testbed with a 600-kilowatt electric motor. This will support Sikorsky's plan to build, test, and fly a hybrid electric vertical takeoff and landing demonstrator with a tilt-wing configuration. Altogether, we're running GE Aerospace with customer expectations front and center while delivering breakthrough innovation that will further shape -- excuse me -- the future of flight.
And FLIGHT DECK ensures we work as one team utilizing one operating model, implement one strategy, and ultimately yielding one culture. This will help us to lead the industry forward and advance our vision to be the company that defines flight for today, tomorrow, and the future. Now, let me hand it over to Rahul.
Rahul Ghai -- Chief Financial Officer
Thank you, Larry, and good morning everyone. Larry, I fully share your enthusiasm as we embark on the next chapter of our journey as a stand-alone company. We will cover GE Aerospace's results on a stand-alone basis, the same as a full-year guide. Also, for simplification, our results will be prepared on a reported basis, and we are limiting non-GAAP free cash flow adjustments to spin-related matters. Overall, GE Aerospace delivered a solid start to the year, with all headline metrics up double digits.
Demand remained resilient. Orders grew 34%, with similar growth rates in both commercial engines and services, or CES, and defense and propulsion technologies, or DPT. Revenue was up 15% from pricing, spare parts volume, and an increase in widebody and defense engine deliveries. Operating profit was $1.5 billion, up 24% with margins up 140 basis points to 19.1%. The profit growth was driven primarily by price, growth in services volume, and favorable mix.
Profit and margins were up in both CES and DPT. Adjusted corporate costs and elimination, including prior GE corporate costs, were $130 million, down more than 20% year over year. Post the GE Vernova spinoff, we expect to incur roughly $300 million for the remaining wind-down of GE corporate office and close to $250 million to set up stand-alone infrastructure for GE Aerospace. We will continue to adjust these items from earnings and cash. Free cash flow was $1.7 billion, doubling year over year, with higher earnings and working capital improvements offsetting AD&A outflow.
Specifically, working capital was a source largely from strong collections and progress payments, while inventory was a headwind. The strength of our operational and financial fundamentals gives us confidence to return 70 to 75% of our available cash to investors. Earlier this month, we initiated a quarterly dividend at $0.28, a 250% increase, and at our investor day, we announced a $15 billion share buyback, a testament to the strength of our balance sheet. To a new capital return framework, we are well positioned to create significant shareholder value while we continue to invest in growth, innovation, and focused M&A. Now, turning to CES and DPT results. Starting with CES, a $24 billion business with 70% of revenue generated from services.
As Larry mentioned, demand continues to be robust. For the year, we now expect departures to grow high single digits. Total departures are off to a stronger start versus a prior expectation, growing 11% in the quarter with particular strength in China. We continue to expect departure growth to moderate throughout the year.
We expect passenger traffic growth in high single-digit range for the year, a slight improvement. Narrowbody remains solid, with increased CFM56 fleet utilization and significant LEAP growth. Further, we now expect freight demand to be up low single digits versus a prior expectation of down mid-single digits. Heightened geopolitical conflicts have increased the need for air cargo and improved its relative economics. As a result, commercial momentum continues.
CES orders were up 34% this quarter. Both services and equipment were up double digits, largely driven by strong demand for LEAP and spare parts across our platforms. Overall, customer dynamics remain positive, with strong order books from both airlines and airframers. On narrowbody platforms, we won more than 300 LEAP-1B engines and a multiyear services agreement from Akasa Air. And on widebody platforms, recent wins included 90 GEnx engines for Thai Airways, 16 GE9X engines for Ethiopian Airlines, and 10 GEnx engines for LATAM group.
This improving demand backdrop underscores a confidence in our annual guide and longer-term outlook. Now, looking at CES' first-quarter results. Revenue grew 16%, with volume up low double -- double digits and the remainder driven primarily by higher price. Services growth of 12% was driven by pricing and strong spare part volume, which grew faster than internal shop visits that were up 3%, impacted by material input challenges. Equipment growth of 31% was driven by pricing and deliveries, which were up 2%, with higher widebody engine mix.
LEAP shipments were roughly flat year over year given the supply chain challenges. As expected, spare engine shipments were down slightly. Profit was $1.4 billion, up 17%, with margins expanding 10 basis points from pricing, spare part sales, and mix. This more than offset higher inflation investments and a change in estimated profitability on long-term service agreements on a mature platform, which negatively impacted both services revenue and profit by roughly $200 million. At CES, we are pleased with a strong start to the year, delivering significant growth and profit improvement. Turning to DPT, which includes both defense and systems and propulsion and additive technologies.
This is roughly a $9 billion business, where services make up approximately 55% of the revenue. Looking at the sector broadly, national defense budgets are growing, with U.S. spending expected to grow low single digits and international spending up mid-single digits. Our defense customers' ask of us is clear: support their readiness while delivering more and more predictably. Turning to our first-quarter results.
Orders were up 34%, underscoring strong demand and the quality of our franchisees with defense book to bill a 1.1x. Revenue grew 18%. Defense unit deliveries grew by 45 engines on an easier compare. This, combined with pricing and growth in classified programs, increased defense and systems revenue by 17%. Propulsion and additive technologies grew 19%, primarily from growth at Avio and Unison to support GEnx and LEAP.
Profit was $250 million, up 26%, with margins expanding 80 basis points. Volume and pricing, net of inflation, more than offset investments and defense equipment mix. In all, improved delivery and pricing drove strong revenue and profit growth this quarter. Given our solid start and constructive outlook for the rest of the year, we are raising our full-year profit and cash guidance as outlined on Slide 11. We continue to project at least low double-digit revenue growth.
In CES, we still expect revenue growth of mid to high teens. In services, we continue to expect mid-teens revenue growth, with shop visit output growing faster than spare parts sales. We are anticipating reduced LEAP output in the range of 10 to 15% growth but continue to expect overall equipment revenue growth of high teens from improving widebody mix. In DPT, we continue to expect mid to high single-digit revenue growth, primarily driven by equipment growth. Operating profit is now expected to be in the range of $6.2 billion to $6.6 billion, up from $6 billion to $6.5 billion previously.
CES operating profit guidance is now expected to be in the range of $6.1 billion to $6.4 billion, up $100 million at the midpoint from favorable revenue dynamics. DPT profit guidance is unchanged. In corporate, we continue to expect cost and eliminations of about $1 billion, including $600 million of corporate expenses and roughly $400 million of eliminations. We now expect margins to expand roughly 50 basis points for the year versus flat previously. Now, as a stand-alone company, we are initiating adjusted EPS in the range of $3.80 to $4.05, up more than 30% year over year.
This includes first-quarter adjusted EPS of approximately $0.92, up more than 40% year on year. And on free cash flow, we expect higher profit to flow through to cash, delivering more than $5 billion with conversion well above 100% of net income. Overall, we are encouraged by the strong start and the market environment that gives us confidence to raise our performance expectations for the year. Larry, back to you.
Larry Culp
Rahul, thanks. We're clearly off to a solid start this year. If I close, on Slide 12, this captures the essence of GE Aerospace and what we take forward with us. We have an excellent franchise with sustained competitive advantages and a compelling value proposition.
Our platforms are preferred by customers across narrowbody, widebody, and defense. Excuse me. We're aiming to provide industry-leading reliability and durability, prioritizing safety and quality first; then delivery; finally, cost. This means delivering unmatched time on wing and faster turnaround times for our customers, and we're doing this across the industry's largest and growing fleets.
With our deep domain expertise and talent, commitment to innovation, and capacity to invest, we're poised to deliver the breakthrough technologies of the future. And with FLIGHT DECK as our foundation to bring this all together, our team is poised to realize our full potential and deliver exceptional value for our customers and our shareholders. I've never been more confident in our path ahead as GE Aerospace. Before I pass it back to Steve for Q&A, I'd like to take a moment to recognize him and his many contributions to GE. As you know by now, today is Steve's last call with us after more than five years with the company or, put another way, after 22 earnings calls.
His dedication and partnership leading the investor relations team and serving as a trusted strategic advisor to me and the rest of the leadership team here has been invaluable throughout our transformation. On behalf of myself and the entire team, Steve, we thank you and wish you the best of luck in your next chapter. And I know Rahul would like to say a few words.
Rahul Ghai -- Chief Financial Officer
Thanks, Larry. Steve, I want to personally thank you for your trusted advice and friendship. As I joined the company and as we executed the launches of GE Aerospace and GE Vernova, your strategic and operating depth and your collaborative style have been instrumental in our transformation. And I know many on these calls and on the calls in the years past are appreciative of your responsiveness to their questions and the work you have done to simplify our financial disclosures while communicating our transformation with clarity and candor. We wish you all the best.
And I'll pass it back to you, in the spirit of making you work till the last day, for questions.
Steve Winoker -- Vice President, Investor Relations
Larry, Rahul, thank you. I can't go on just yet without at least one quick comment. It's really been a true honor, privilege, and pleasure to serve with you and the rest of the teams at GE and GE Aerospace, a real master class for me. Thank you for always giving our investors and analysts a seat at the table.
And I'm deeply grateful, proud of the teams, and excited to see what comes next. And I know the futures of GE Aerospace, GE Healthcare, and GE Vernova are bright indeed. So, now, before we open the line, I'd ask everyone in the queue to consider your fellow analysts again and ask one question so we can get to as many people as possible. And if we have extra time, we'll circle back around. We ask that you please save any GE Vernova questions until their earnings call later this week again.
Liz, can you please open the line?
Questions & Answers:
Operator
[Operator instructions] Our first question comes from the line of David Strauss with Barclays.
David Strauss -- Barclays -- Analyst
Great. Thanks. Good morning. Congrats, Steve.
Larry Culp
Good morning.
David Strauss -- Barclays -- Analyst
One to Larry. Want to ask about the updated LEAP delivery guidance, now 10 to 15%, down from 20 to 25. Could you just dig into that a little bit, what drove that? Is that -- is that constraints on the supplier side? Is that Boeing taking down their schedule? What -- what exactly went into that thing?
Larry Culp
Yeah, I would say that that -- that clearly is a change here in the update this morning. Dave and company are going to talk about their -- their rates tomorrow, I'm sure, on their earnings call. So, we'll -- we'll leave that conversation with them. Rest assured, as we are with all of our -- our customers, we're well calibrated and aligned with respect to what we need to do, what they need from us as we as we look forward. But I think all of us, particularly at this moment, before we talk about rates, always come back to make sure we're doing all that we can on the safety and quality fronts to ensure the -- the best possible performance of our products, both as they're being manufactured and then, in turn, deployed in the field.
Operator
Our next question comes from Ron Epstein with Bank of America.
Ron Epstein -- Bank of America Merrill Lynch -- Analyst
Hey, good morning.
Larry Culp
Morning, Ron.
Ron Epstein -- Bank of America Merrill Lynch -- Analyst
If you could talk a little about the -- the -- the orders. I mean, they're up pretty spectacularly. And commercial engines and services up 78%. Defense, propulsion, and technologies, up 72.
How much is that volume versus pricing?
Rahul Ghai -- Chief Financial Officer
Ron, I would say most of that is volume, and pricing helped across the -- across the board, showed up in our revenue growth, margin expansion, and in the orders outlook. But off a 34% increase in orders, I would say, you know, most of that is coming from base volume growth with price contributing as well.
Operator
Our next question will come from the line of Sheila Kahyaoglu with Jefferies.
Sheila Kahyaoglu -- Jefferies -- Analyst
Thank you. Good morning, Larry and Rahul and Steve.
Larry Culp
Good morning.
Rahul Ghai -- Chief Financial Officer
Good morning.
Steve Winoker -- Vice President, Investor Relations
Good morning.
Sheila Kahyaoglu -- Jefferies -- Analyst
Congratulations on elevating the investor relations game to the next level. So, one for Larry or Rahul. You know, with Q1 margins, you guys have done a really great job. 19%, 150 bps above the prior guide -- sorry, the midpoint.
You know, Rahul, maybe if you could revisit the two points of margin headwind you pointed us to last quarter. You know, you mentioned LEAP is lower on that unit volume, maybe about 40 bps of a tailwind versus your original guide, and then GE9X is probably consistent. So, maybe if you could talk about the puts and takes along with the investment and timing to get us to that mid-17% range for the year.
Rahul Ghai -- Chief Financial Officer
OK. A couple of things in there, Sheila. Let me start with where you started, which was, the two points of margin headwind that we had spoken to on the January call and on our investor day. So, if you go back, we had expected two points of margin pressure from LEAP OE ramp, introduction of 9X, and the step-up in R&D to support LEAP durability, introduction of 9X, and develop the future of flight. Now, with the push-out of LEAP volume, that headwind of the two points is marginally lower.
but now, if you step back and look at our overall guide for the year, listen, strong start to the year. You know, we are pleased with where we are. And that has given us confidence to raise guidance for the full year. And we expect the momentum to fully continue as we get into the second quarter. And overall, for first half, we are expecting, you know, about low double-digit revenue growth and about half of profit and free cash for the year.
So far, more linear year than we have done in the past. And overall, as you step back and look at the full year, you know, profit of $150 million at the midpoint of our guide, you know, to a range of 6.2 billion to 6.6 billion, call it mid-teens profit growth, and more than 30% EPS growth. So, it will be a good year, you know, if you deliver these numbers.
Operator
Our next question will come from Myles Walton with Wolfe Research.
Myles Walton -- Wolfe Research -- Analyst
Thanks. Good morning. And good luck, Steve. If I adjust CES for the $200 million long-term contract adjustment, the CES margins are up 250 basis points year on year despite this OE growth at two times aftermarket growth.
And I hear what you're saying earlier on the spares exceeding shop visits, but is there anything else under the surface that really explains that kind of counterintuitive margin expansion?
Rahul Ghai -- Chief Financial Officer
No. Listen, we had a good start in CES, you know, a billion four of profit, margin expansion despite the CMR or the, you know, the -- the service profit adjustment that we had to make in the quarter. But, you know -- and the big drivers here were pricing and customer mix, both on the equipment and on services. The mix shift from -- mix shift in OE from LEAP to widebody mix health and also in services. Our spare part volume growth was higher than shop visit growth.
So, that mix shift in services was a contributor as well. So, encouraging start. But as you go through the year, keep in mind that, you know, the equipment growth will ramp in the second half of the year. Equipment growth will also include 9X shipments, and the services mix will skew back toward the shop visit growth, which we still expect to be maybe, you know, low to mid-teens for the year. So, the second-half profit growth on a year-over-year basis will be lower than the profit growth that we'll see in the first half.
But overall, listen, a good start in CES, and this gives us confidence to raise the full year for CES in profit by about $100 million.
Operator
Our next question will come from Robert Stallard with Vertical Research.
Rob Stallard -- Vertical Research Partners -- Analyst
Thanks so much. Good morning.
Larry Culp
Good morning.
Rob Stallard -- Vertical Research Partners -- Analyst
Just following on from David's question on the LEAP, do these issues with ramping up the LEAP have positive implications for the CFM shop visit peak, which I think you've earlier estimated at 2025, and also, the -- the height of that peak potentially going forward?
Larry Culp
Well, I would say that we do see, I think, some knock-on positive effects in the aftermarket, both here in '24, but also in some of our projections. I think it was just even last month at investor day, we talked about how retirements have been lower than we would have anticipated. Thus, that should yield 200 incremental shop visits in 2024 relative to what we anticipated. I think as long as capacity demand remains strong -- I get a report every morning at 6 a.m., this morning showed our departures on a worldwide basis across all of our platforms, up 7.8%, right? That's part of what Rahul alluded to in our prepared remarks with respect to our more optimistic outlook with respect to passenger demand. We know the airlines are looking to generate as much lift as they possibly can, and to the extent that they're paced by deliveries, retirements will -- will slow and that installed base will be worked. And fortunately, much of that came from our factories, and we're well positioned to support that.
Does that push out the timing of perhaps peak CFM56? Yes. But it's -- but it's early, right? And I don't think we're going to try today to take a quarter in that time frame is to win. That might occur, but it's -- it's -- it's a positive dynamic force in the aftermarket, both with the existing platforms and increasingly with the LEAP.
Operator
Our next question will come from Seth Seifman with J.P. Morgan.
Seth Seifman -- JPMorgan Chase and Company -- Analyst
Hey, thanks very much. Good morning, everyone. And, congratulations, Steve, and thanks for all the help. I wanted to ask about shop visit growth and sort of the -- any challenges around the guidance for the year and the level of visibility that you have sort of starting off with -- with 3% and needing to get to, you know, kind of at least a mid-teens type of number for the year and, you know, that being constrained by, you know, various challenges in supply chain and, you know, internal productivity, and you know, kind of how much -- how much confidence you have around that ramp and shop as it grows?
Larry Culp
Morning, Seth. Clearly, if we're going to talk about a guide, as we are this morning, there's a high level of conviction. But I think you put your finger on what we are working on day in, day out here operationally. I think the financial numbers year over year are strong, but we know that we could have delivered -- we could have executed on more shop visits in the first quarter had we had more reliable, more predictable material flow into our shops. That doesn't impact us as much in terms of spare parts, right? We don't need everything necessarily to move that product to customers, but we do in the case of a shop visit.
Some of the FLIGHT DECK examples that I referenced, I think, give us real encouragement that the work we're doing with those top five or top 15 supplier sites is yielding progress if you look at what we've seen just here in April. We've had a stronger start to the second quarter in terms of shop visit activity, completed outputs than we did in January. That's one comparison that we focus on because we still are not as linear through the course of a quarter as we would like. And making good use of the first two, three, four weeks of a quarter is critical for us to be able to deliver the year-over-year level on the sequential growth that we would like to see that's embedded here, and most importantly, what our customers need from us given how active they're working these assets. So, the supply chain topic is still relevant. I suspect we'll be talking about it again for the foreseeable future, but I'm very encouraged by the progress that we're making.
We just need to make a whole lot more.
Operator
Our next question will come from the line of Ken Herbert with RBC Capital Markets.
Ken Herbert -- RBC Capital Markets -- Analyst
Hi. Good morning, and congratulations, Steve.
Steve Winoker -- Vice President, Investor Relations
Thanks, Ken.
Ken Herbert -- RBC Capital Markets -- Analyst
Hey, Larry or Rahul, you called out freight as a source of growth in the quarter, and I think you raised your full-year outlook there from sort of previously down maybe low single to now up low single. As we think about the impact in CES, is that just in relation to what we've seen in the Middle East? Are you seeing other fundamental changes that give you more confidence there? And how do we think about that impact, specifically as we think about the CES business and where you're seeing that flow through?
Larry Culp
Well, Ken, you're spot on, we're taking that again. To level set everybody from a outlook, that had us down mid-singles this year to now a positive low single-digit number. I think there is some influence here from what's happening in the Middle East. But I think we're just seeing a higher demand overall, from an air cargo perspective, that will principally course through our widebody exposure, more so than the single aisles. And I don't think we're going to quantify it here, but that's certainly part of what is behind the improved service outlook and thus the improved overall outlook for the rest of this year.
Rahul Ghai -- Chief Financial Officer
Yeah. And, Ken, just to add to that, you know, the direct impact is -- all depends on the number of shop visits that kind of move into the year. And I think that is -- that always takes time. So, there's not a direct correlation here that may show up during the year.
But overall, as we look over an extended period of time, as we look at '24, '25 combined, that will definitely be a positive driver. So, we do expect the benefit from the higher freight departures to be in our financials. The question is probably not as much in '24 more than '25.
Operator
Our next question comes from the line of Gautam Khanna with TD Cowen.
Gautam Khanna -- TD Cowen -- Analyst
Hey. Good morning, and congrats, Steve.
Steve Winoker -- Vice President, Investor Relations
Thanks, Gautam.
Larry Culp
Good morning.
Gautam Khanna -- TD Cowen -- Analyst
Hey, so you guys mentioned the lower LEAP production this year. I assume it's a function of lower 1B OE needs, but I was curious if you could just help us understand how we should think about the leap OE versus spares provisioning mix this year versus your prior expectations. And also wondering, given the lower rate on LEAP, are you going to be slowing down some of your LEAP suppliers? Or given the comments you made on the constraints within the supply chain, are you still pushing all these guys to -- to continuously raise production, you know, to work as hard as they can?
Larry Culp
Well, maybe we'll take those in reverse order. I'll speak to the supply chain, and Rahul can speak to where we are from a spares perspective. As I indicated, we're -- we're calibrated with both of our major narrowbody airframers. As we do that, we are always, in turn, calibrating with the supply base.
And I think what we want to do in that work is make sure we're not overly indexed, if you will, on the next quarter or two. So, important, we want to make sure that we are preparing over the next several years to ramp, given the skylines, that -- that both of our major airframer customers enjoy today, right? A single lot slot is a scarce commodity. If we were out looking for one day, we might not find it until the next decade. That said, I think everybody, key aerospace included, is primarily focused on making sure, from a safety and a quality perspective, that we are in no way compromising as we think about the -- the wonderful gift we have in the form of these robust guidelines. And that's been at the heart of the GE work, the lean transformation for -- for years now, right? You hear us talking about SQDC, safety and quality before delivery and cost.
It's at the -- at the core of FLIGHT DECK and everything that we do. Rahul, spares?
Rahul Ghai -- Chief Financial Officer
So, on the spare engines, Gautam, you know, overall, our spare engine ratio came down slightly in the first quarter on a year-over-year basis. And we do expect the full-year spare engine ratio to be down as well versus 2023, kind of as we've communicated before. So, really not a lot of change here from the change that we are making in the LEAP install engine output to translate into spare engine. So, we still expect the spare engine ratio to be down year over year. And -- and it will be -- it'll keep coming down over the next couple of years, I would say, on a gradual basis, Gautam, just given where, you know, LEAP spare engine has been in the past.
So, we expect a continued decline here in the spare engine ratio over the next couple of years on a -- you know, gradually.
Operator
Our next question will come from the line of Scott Deuschle with Deutsche Bank.
Scott Deuschle -- Deutsche Bank -- Analyst
Hey, good morning.
Rahul Ghai -- Chief Financial Officer
Morning, Scott.
Larry Culp
Morning, Scott.
Scott Deuschle -- Deutsche Bank -- Analyst
Hey, Rahul, what does the 100% free cash flow conversion target for 2028 assume with respect to the proportion of new engines being sold on CSAs in that time frame, particularly on LEAP? Mainly, I'm just curious, if you're assuming mostly migrates to T&M by that time. Thanks.
Rahul Ghai -- Chief Financial Officer
We do expect, Scott, that as we go through the year -- as you go through the decade, I should say, that there will be more T&M contracts. Keep in mind, as you know, Russell spoke at Investor Day, you know, our 20, 30-ish target for LEAP is we do about 60% or so of the shop visits between us and Safran, and 40% are done externally. And of that 60%, you know, there'll be a mix between CSAs and T&M, but we are actively working to increase the T&M population. Our -- our CBSA partners are standing up there, helping us as well.
So, we would see a migration from CSAs to T&M contracts, with about 60% of THE shop visits done in-house here between Safran and GE Aerospace and the remaining 40% being done by our channel partners.
Operator
Our next question will come from the line of Robert Spingarn with Melius Research.
Rob Spingarn -- Melius Research -- Analyst
Good morning.
Larry Culp
Good morning, Rob.
Rob Spingarn -- Melius Research -- Analyst
Congrats to the team for this new chapter and getting through the spins. And congrats to you, Steve. I wanted to ask you, Larry, about RISE, Just to change the topic a little bit, and the potential here to deliver 20% improvement in fuel consumption versus current engines. Both airframers appear interested in RISE.
And if competing engine OEMs aren't providing an open fan architecture, could we find ourselves in a position where RISE is -- or CFM is the only engine provider for the next-gen narrowbodies? Or do you think that the need for competition changes that dynamic?
Larry Culp
Well, I think where we're focused today is really in two areas: one, making sure that we continue to advance the building blocks of the underlying technologies with that -- with that engine platform. And that's the work that we're spending a considerable amount of money on as part of that $2 billion R&D -- R&D budget this year. I'd say the other area is making sure that we are closely aligned with the airframers, not only with respect to giving them visibility on the progress that we're making in our technology road map, but also working with them as they think about their own product road maps into the future. So, that -- there is that, if you will, that -- that collaborative, symbiotic dynamic.
How all that plays out, time -- time will tell. But as we have done over generations, we want to lead with innovation, we want to lead with technology; we want to be close to the airframers. I think everyone understands that we are going to need to see that type of 20%-plus step function in efficiency in the next-gen platform. And as we have in the past, we intend to have GE Aerospace at the forefront.
Operator
Our next question will come from the line of Noah Poponak with Goldman Sachs.
Noah Poponak -- Goldman Sachs -- Analyst
Hello? Can you hear me?
Larry Culp
We can.
Rahul Ghai -- Chief Financial Officer
Good morning, Noah.
Steve Winoker -- Vice President, Investor Relations
Morning. Clear.
Noah Poponak -- Goldman Sachs -- Analyst
Hi. Sorry it cut out on my end, but good morning, everyone. And let me add my congratulations to -- to completing the spin. And, Steve, thanks a lot for all your help getting up to speed.
Steve Winoker -- Vice President, Investor Relations
Thank you.
Noah Poponak -- Goldman Sachs -- Analyst
Rahul, could you spend another minute on the free cash in the quarter and for the full year? You know, if -- if you're going to have any seasonality that looks like the company used to or the industry often does through the year, that number in the first quarter would imply a lot of upside to -- to the five. I know you highlighted working capital timing. It didn't look like that big of a number in the quarter on an absolute basis. Maybe it's just normally weaker. So, yeah, I guess how much bigger is the greater sign on the five now than it was before, or did you just truly have pure timing in the quarter?
Rahul Ghai -- Chief Financial Officer
Yeah, so, Noah, listen, good start on -- on cash. Obviously pleased. You know, we doubled our free cash flow at Aerospace year over year. I would say, first, let's just talk about the quarter.
Two main drivers here. One was earnings growth, and second was working capital improvement which kind of offset the AD&A headwind. And, you know, working capital in the quarter was -- was -- was a source of cash versus a use of cash last year. So, that was a good turnaround from what we delivered. And the improvements we saw in the quarter came from a days sales outstanding that were down six days year over year and then progress payments that we got from customers.
Inventory continue to be a challenge given all the material availability, you know, so our WIP levels are high, and the trapped inventory that we have increased as well. So, overall, earnings growth and working capital kind of drove the first quarter. And as you look at the -- at the full year, you know, to -- to your question on how -- you know, what's changed versus our prior guide, we've -- as I said in my prepared remarks, we do expect the incremental earnings growth that we are driving to flow through to cash. So, you know, we increased our -- the midpoint of our op profit by $150 million. So, call it $100 million kind of post-taxes that, you know, our free cash should be up by that. Again, on a -- on a full-year basis, you know, same drivers of -- of -- of free cash earnings growth and working capital improvement will continue to be the two big drivers.
I think the -- the things that we are watching here, Noah, as you go into the second half of the year, is going to be the inventory reduction that we can drive. So, that's the one that's -- you know, just given the supply chain challenges, given the demand dynamics with the airframers, so we continue to watch our inventory levels and can we drive the same level of inventory reduction that we had initially planned that we had -- we had started the year. So, again, good start. We expect about half the full-year cash to be in the first half of the year. And then, we do think that the earnings increase that we've driven should flow through our cash as well. And greater than 100% conversion, you know, well above 100% for the year.
Operator
Our next question will come from the line of Matt Akers with Wells Fargo.
Matt Akers -- Wells Fargo Securities -- Analyst
Yeah. Hi, good morning, guys.
Larry Culp
Morning.
Matt Akers -- Wells Fargo Securities -- Analyst
Congrats, Steve. Can you touch a little bit more on the $650 million investment, just the benefits you expect to get from that? And it looks like there's a lot of additive manufacturing in there. If you could just talk about that opportunity as well.
Larry Culp
Well, it really is a broad-based enhancement of our existing domestic footprint. I'm sure you've seen some of the -- the line-item details that were publicized locally across the country. I think, more than anything, what we wanted to do was make sure we were supporting the -- the fixed capital investments required to operationalize FLIGHT DECK to prepare for the capacity expansions. And in some instances, be it additive or, in some other technologies, like CMCs, that we were getting out ahead of demand to the fullest extent possible. Again, back to the reality of the skylines we talked about earlier.
So, that's what we'll do. That's kind of the announcement that we made here recently. I'm sure there will be follow-on announcements as we continue to invest, but the most important investments I think we make are those that we make in our people. And much of what we do from a training development perspective, especially the FLIGHT DECK, is really geared toward making sure that the people who come in every day are able to do great work and put those fixed assets to their highest and best use.
Steve Winoker -- Vice President, Investor Relations
Hey, Liz, we have -- we have time for one last question.
Operator
This question will come from a line of Jason Gursky with Citi.
Jason Gursky -- Citi -- Analyst
Yeah, same thing with Noah. Can you hear me all?
Steve Winoker -- Vice President, Investor Relations
We can, very well.
Larry Culp
Yeah. Good morning.
Jason Gursky -- Citi -- Analyst
It does go quiet right before you're allowed to open the line. Hey, Steve, thanks for all of the help, over the last, you know, year or so. And, Blair, look forward to -- to working with you. I'm sure you're listening in.
Larry, a clarification point here, and then just a really quick question. On the clarification side of things, I think in your commentary about volume on lead, during your prepared remarks, you talked a little bit about supply chain being a bit of a constraint there. So, I want to make sure that that's the case in addition to whatever's going on with with Boeing. And then, on the question side of things, the -- just kind of curious how the -- the customer tone is, these days, on the narrowbody side, when -- with those airlines where you're competing for slots against the Pratt and Whitney engine, whether the tone of those conversations is, you know, any more constructive for you and the competitive environment is looking more optimistic for you on head-to-head competition against the Pratt engine. Thanks.
Larry Culp
I would say is I think both Rahul and I have -- have commented that we're -- we're well calibrated with -- with Boeing on the -- on the LEAP-1B requirements. We'll -- we'll leave it to Dave and Brian to speak to the details tomorrow. I think as we look forward, not only with that engine, but -- but others, the supply chain challenge that we've touched on in prior calls continues to be relevant. With respect to new business, I think if you look at our win rates, particularly in the narrowbody space, over the last several years, we've been very encouraged by the sequential trend, the upticks that we have seen there. And we will continue to work hard to earn the business that ought to come our way.
No -- no change in that posture whatsoever.
Steve Winoker -- Vice President, Investor Relations
So, Larry, any -- any final comments?
Larry Culp
Steve, thank you, and again, thanks for everything. Let me just close. I hope you see here that the GE Aerospace team is moving forward with a greater focus to invent the future of flight, to lift people up and bring them home safely. And with flight daggers our foundation, I'm confident we will realize our full potential in service of our customers, employees, and shareholders. We appreciate your time today and your interest in GE Aerospace.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Steve Winoker -- Vice President, Investor Relations
Larry Culp -- Chairman and Chief Executive Officer
Rahul Ghai -- Chief Financial Officer
David Strauss -- Barclays -- Analyst
Ron Epstein -- Bank of America Merrill Lynch -- Analyst
Sheila Kahyaoglu -- Jefferies -- Analyst
Myles Walton -- Wolfe Research -- Analyst
Rob Stallard -- Vertical Research Partners -- Analyst
Seth Seifman -- JPMorgan Chase and Company -- Analyst
Ken Herbert -- RBC Capital Markets -- Analyst
Gautam Khanna -- TD Cowen -- Analyst
Scott Deuschle -- Deutsche Bank -- Analyst
Rob Spingarn -- Melius Research -- Analyst
Noah Poponak -- Goldman Sachs -- Analyst
Matt Akers -- Wells Fargo Securities -- Analyst
Jason Gursky -- Citi -- Analyst
