The market aggressively sold off GE Aerospace (GE 5.67%) stock following its fourth-quarter 2025 earnings report, largely due to the company's implied guidance that operating profit margins would be similar to those in 2025. That's a superficially disappointing result for a company set to grow revenue at a low double-digit rate in 2026.
Still, digging deeper reveals a host of reasons why investors should be more optimistic, not more pessimistic, about GE's long-term earnings outlook after these results. Here's why.
GE Aerospace and the spare engine ratio
The company's core business is the design and manufacture of commercial aircraft engines, including the CFM56 (used on the legacy Boeing 737 and the Airbus A320 family) and the LEAP (used on the Boeing 737 MAX and the Airbus A320neo). Newly installed engines are usually sold at a loss, at least in the first years of production, only to generate highly lucrative service and aftermarket revenue on long-term service agreements (LTSA) as aircraft engines can run for more than 40 years.
NYSE: GE
Key Data Points
In addition, GE sells highly profitable spare engines to airlines. Given the supply chain crisis following the lockdowns, airlines favored buying more spare engines to ensure they could keep schedules running and meet post-lockdown travel demand. The so-called spare engine ratio is simply the ratio of engines airlines hold as spares compared to those in their fleet.
A lower spare engine ratio and GE Aerospace profit margins
Now that the supply chain crisis is easing, airlines are moving toward lower spare-engine ratios, which is negatively impacting GE's profit outlook. In fact, CFO Rahul Ghai acknowledged that "our margins are expected to be flattish here in 2026" on the earnings call, citing a lower spare engine ratio. As LEAP engine deliveries ramp up and become increasingly for installed engines rather than spares, GE's margins will be hit.
Data source: GE Aerospace presentations. Chart by the author.
Why the market is wrong about GE Aerospace
While no one likes to see a near-term margin hit, there were two things management said that encourage a more bullish long-term outlook.
First, GE engines continue to be heavily utilized with retirement rates in 2025 similar to those of 2024, and Ghai expects them to be at 2% in 2026, a figure at the low end of management's expectation of 2% to 3%. That implies more older planes running longer, and that's usually good news for GE's aftermarket sales.
Second, while relatively more installed engine vs. spare engine sales is bad for near-term margins, it's better for long-term profitability because installed engines are run more than an engine sitting in an aircraft hangar.
As you can see above, GE expects to continue ramping LEAP deliveries as the supply chain eases, and that's a good thing for long-term profitability even if it negatively impacts near-term margins.
Image source: Getty Images.
A stock to buy?
While GE isn't a superficially cheap stock (it trades on just less than 40 times expected earnings for 2026), there's nothing in these results that should make long-term investors feel less positive about the company or the stock. The sell-off makes no sense from that perspective, and the stock deserves a closer look.
