How Planes Getting Back in the Sky Could Make Companies Stronger (and What That Means for You)
- More people flying means more planes are needed, and that’s good for companies that build and fix airplane engines.
- These companies have a clever way of making money over the long term, like selling a printer and then making money on the ink.
- Even with some bumps in the road (like getting parts), these companies are expected to grow and make more money in the future.
The Big Picture: Planes Take Flight, Businesses Thrive
Imagine your favorite video game. There’s a big event happening, and suddenly everyone wants to play. To play, you need a special controller, and that controller has parts that need to be made and sometimes fixed. That’s a little like what’s happening in the world of airplanes.
For a while, after a big event (think of it like a game update that made people stop playing), fewer people were flying. This meant fewer planes were taking off, and companies that make the engines for these planes, like GE Aerospace, weren’t as busy. But now, more and more people are getting back in the air. It’s like the game has become popular again, and everyone wants that special controller.
GE Aerospace is a company that makes a huge number of the engines that power most commercial flights around the world. You might have heard of them, especially if you’ve flown on a Boeing 737 MAX or an Airbus A320neo. These are like the most popular characters or vehicles in our video game analogy, and GE Aerospace’s engines are a big part of what makes them work.
When fewer people were flying, it meant that the older engines were being used a lot, and they needed more repairs and servicing. But now that more flights are happening, airlines are starting to want newer, more efficient engines.
The “Razor and Blade” Business Model: A Smart Way to Earn
This is where things get really interesting for companies like GE Aerospace. They have a business strategy that’s a bit like how some companies sell printers. They might sell you a printer for a pretty good price, maybe even at a small profit or loss. But the real money comes from selling you the ink cartridges over and over again for years.
GE Aerospace does something similar with its airplane engines. They sell the engines, which are incredibly complex and expensive pieces of technology. The profit they make on selling the engine itself might not be huge. However, the real long-term income comes from the services agreements they have with airlines. These agreements cover maintenance, repairs, and parts for the engines.
Think about it: airplane engines are designed to last for decades. So, a contract to service an engine can bring in money for 40 years or even longer! This creates a very steady and predictable stream of income for GE Aerospace, even if the number of new planes being sold fluctuates.
Why More Flights Mean More Business (and More Money)
When more flights are happening, two main things benefit GE Aerospace:
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Increased Demand for Services on Older Engines: Even though airlines want new planes, they still have many older planes with engines that need regular maintenance and repairs. With more flights, these older engines are being used more, leading to more service needs. This is like the older game controllers needing more fixes as more people play the older versions of the game.
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Growth in New Engine Deliveries: As airlines get back to full operation and look to the future, they are ordering new, more fuel-efficient planes. This means GE Aerospace is busy building and delivering these new engines. These new engines will then start their own long journey of needing services and parts for many years to come.
Recently, there have been some challenges in getting all the parts needed to build these new engines quickly. This is like a shortage of a key component for your video game controller. But the good news is that these supply chain issues are starting to ease up. This means GE Aerospace can now build and deliver more of the new engines, which is fantastic for their future earnings.
The “So What?”: How This Affects Your Future
You might be thinking, “This is all about airplanes and big companies. How does this affect me, a 17-year-old who doesn’t have much money yet?”
Here’s why it matters:
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Future Job Opportunities: Companies like GE Aerospace are major employers. As they grow and become more successful, they create jobs for engineers, technicians, designers, and many other roles. Understanding how these businesses work can help you see where future career paths might be.
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The Economy as a Whole: The aerospace industry is a significant part of the global economy. When it’s doing well, it means more trade, more travel, and more money circulating. This can lead to a healthier economy overall, which benefits everyone in the long run.
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The Power of Long-Term Investing: GE Aerospace’s story is a great example of how investing in companies with strong business models and dominant positions can pay off over time. Even if you don’t have money to invest right now, learning about these concepts is the first step to building your own financial future. When you eventually have savings, understanding how businesses make money can help you make smart decisions about where to put that money to work for you.
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Understanding Value: GE Aerospace’s stock has performed very well because it’s a crucial company with a business that’s designed to make money for a very long time. This shows that sometimes, the most successful investments aren’t the ones that make a quick buck, but those that are built on solid foundations and provide ongoing value.
Your Next Step: Keep Learning About How Businesses Grow
The world of business and finance can seem complicated, but it’s all about understanding how things work. GE Aerospace’s success is tied to a fundamental human activity: travel. As travel increases, so does the demand for the technology that makes it possible.
Your actionable step today is simple: Learn more about the “razor and blade” business model. Try to identify other companies in different industries that might use a similar strategy. For example, think about companies that sell software and then charge monthly fees for updates or extra features, or companies that sell gaming consoles and then make money on the games you buy. Understanding these different ways businesses earn money will give you a much clearer picture of how the economy works and where opportunities lie.
Disclaimer: This is for educational purposes only and not financial advice.