CFM International

CFM International is a Franco-American high-tech powerhouse and a world-leading supplier of jet engines for commercial aircraft. It is not a company you can buy shares in directly, but rather a 50/50 joint venture between two titans of the aerospace industry: General Electric (GE) of the United States and Safran Aircraft Engines of France. Formed in the 1970s, CFM International designs, manufactures, and services the incredibly successful CFM56 and its successor, the LEAP engine series. These engines are the workhorses of the skies, powering the majority of the world's most popular narrow-body aircraft, including the Boeing 737 family and the Airbus A320 family. For a value investing enthusiast, understanding CFM is a fascinating case study in a business with a deep, wide economic moat, long-term predictable revenues, and immense barriers to entry. Its success is a major driver of value for its parent companies, making it a critical component to analyze when considering an investment in either GE or Safran.

From a value investing perspective, CFM International embodies many of the qualities that legendary investors seek. Its business is protected by a formidable competitive advantage, or “moat,” that is incredibly difficult for any competitor to breach.

CFM operates a classic razor-and-blades business model, a strategy that should make any long-term investor's heart beat a little faster.

• The Razor: The initial sale of a new LEAP engine. These are often sold at thin margins, or sometimes even at a loss, to secure a spot on a new aircraft. The goal is to get as many “razors” into the hands of customers (airlines) as possible.
• The Blades: This is where the real money is made. Once an engine is in service, it requires decades of maintenance, spare parts, and overhauls. This aftermarket revenue is recurring, predictable, and carries incredibly high profit margins. Every hour a plane with a CFM engine is in the air, it's effectively ringing a cash register for GE and Safran through Long-Term Service Agreements (LTSAs).

CFM's dominance in the narrow-body jet market is staggering. For decades, the CFM56 engine was one of the best-selling engines in history. Its successor, the LEAP engine, has continued this legacy, capturing a dominant market share on new-generation aircraft. This creates a powerful competitive advantage built on two pillars:

1. Massive Installed Base: With tens of thousands of engines in service, CFM has a locked-in stream of high-margin service revenue that will continue for decades to come.
2. High Switching Costs: Once an airline chooses an engine for its fleet of 737s or A320s, it's practically impossible to switch to a competitor for that airframe. This locks the airline into the CFM ecosystem of parts and services for the life of the plane, which can be 25 years or more.

Since CFM International is not a publicly traded entity, you cannot buy its stock directly. However, you can gain exposure by investing in its two parent companies, which split all of CFM's profits equally.

1. General Electric (GE): Post its historic restructuring, GE is now primarily an aerospace company, with CFM being the crown jewel of its portfolio. An investment in GE is a highly concentrated bet on the future of aviation and CFM's continued success.
2. Safran SA: A French multinational aerospace and defense company. While it has other business lines, the propulsion division, powered by its half of CFM, is its largest and most profitable segment. Safran is listed on the Euronext Paris stock exchange.

When analyzing either company, a wise investor will treat the performance of CFM International as a primary driver of value. Look for details on engine deliveries, the services backlog, and profit margins within the aerospace or propulsion divisions of the parent companies' financial reports.

No investment is without risk, and even a dominant business like CFM faces potential headwinds.

• Airline Industry Cycles: Aviation is a cyclical business. Economic downturns can lead to reduced air travel, causing airlines to park planes and delay new aircraft orders, which directly impacts CFM's revenue.
• Supply Chain Disruptions: Manufacturing a jet engine is an incredibly complex process involving thousands of suppliers. Any disruption, as seen in recent years, can slow down production and delivery.
• Geopolitical Tensions: As a US-French joint venture with a global customer base (including China), CFM's operations can be sensitive to trade disputes and international politics.
• Long-Term Technological Shifts: While the transition will take decades, the global push for sustainable aviation may eventually lead to new propulsion technologies (like hydrogen or electric) that could disrupt the current jet engine model.