Market Risk Assessment: General Electric Co (GE Aerospace) — 10-K FY2025

1. Interest Rate Sensitivity

Exposure and Debt Structure

GE Aerospace's consolidated total borrowings stood at $20.5 billion at December 31, 2025, up from $19.3 billion at year-end 2024, an increase of $1.2 billion driven by $2.0 billion in new debt issuance, partially offset by $1.8 billion in maturities. The new debt issued in July 2025 consisted of fixed-rate senior unsecured notes: $1.0 billion at 4.3% due 2030 and $1.0 billion at 4.9% due 2036, indicating a predominantly fixed-rate debt profile for newly issued instruments.

The carrying value of long-term borrowings subject to discontinued fair value hedges was $8.286 billion at December 31, 2025, with cumulative net gains from terminated hedging adjustments of $969 million still embedded in that balance and amortizing into interest expense over the remaining life of those instruments.

Sensitivity Quantification

Applying a ±100 basis point parallel shift in interest rates held for 12 months, the company estimates a $0.1 billion impact on consolidated net income — a relatively modest figure given the $20.5 billion debt load, consistent with a largely fixed-rate debt structure.

Hedging

All fair value hedges on debt were terminated in 2022. No active interest rate swap hedges are currently in place on the debt portfolio. Cross-currency interest rate swaps serve a dual purpose (currency and interest rate), with periodic interest settlements of $27 million recognized in 2025 (vs. $2 million in 2024), reflecting the significant expansion of this instrument class.

Assessment

• Strength: Fixed-rate debt structure limits near-term earnings sensitivity to rate movements; the $0.1 billion sensitivity figure is manageable relative to the company's $8.5 billion operating cash flow.
• Weakness: The absence of active interest rate hedges on the debt portfolio and the legacy amortizing fair value hedge adjustments ($969 million) introduce some complexity and residual exposure. The $3.0 billion revolving credit facility (currently undrawn) carries variable-rate risk if drawn.

2. Foreign Currency Exposure

Currencies and Nature of Exposure

GE Aerospace generates and incurs a small portion of revenues and expenses in non-USD currencies. Principal currencies identified are the euro, British sterling pound, and Brazilian real. The filing characterizes the overall foreign exchange impact on income as insignificant.

The company holds $0.4 billion of cash in countries with currency control restrictions, limiting repatriation flexibility.

Translation vs. Transaction Risk

• Transaction risk is managed through qualifying currency exchange contracts (notional: $2.125 billion at December 31, 2025, up from $1.873 billion in 2024) designated as cash flow hedges, with $46 million of gains expected to be reclassified from AOCI to earnings in the next 12 months.
• Translation risk on net investments in foreign operations is hedged via foreign currency debt and cross-currency interest rate swaps designated as net investment hedges. The carrying value of foreign currency debt in net investment hedges was $4.958 billion (down from $5.199 billion in 2024). Net investment hedges generated an OCI loss of $798 million in 2025 (vs. a gain of $348 million in 2024), reflecting significant USD strengthening against hedged currencies.

Non-Qualifying Derivatives

Non-qualifying currency exchange contracts carried a notional of $4.983 billion (down from $6.759 billion in 2024), generating $243 million in gains in 2025 (vs. $105 million in 2024), substantially offset by remeasurement of underlying exposures.

Sensitivity Quantification

A 10% shift in exchange rates against the USD is estimated to have an insignificant impact on consolidated net income, reflecting the effectiveness of the hedging program and the limited proportion of non-USD operations.

Assessment

• Strength: Multi-layered hedging program (cash flow hedges, net investment hedges, economic hedges) provides comprehensive coverage; the $46 million near-term AOCI reclassification is well-defined and manageable.
• Weakness: The large OCI loss of $798 million on net investment hedges in 2025 (reversing the prior year's $348 million gain) highlights the volatility that can flow through equity even when earnings are protected. Currency control restrictions on $0.4 billion of cash represent a structural liquidity constraint.

3. Commodity Price Risk

Disclosure

The filing states that derivatives are used to manage risks related to commodity prices, and this is listed as one of the three risk categories addressed by the derivatives program. However, no specific commodity exposures, contract structures, notional amounts, or quantitative sensitivity measures are disclosed in the provided text. No commodity-specific derivative positions appear in the fair value of derivatives table.

Assessment

• Weakness: The disclosure is materially incomplete with respect to commodity risk. As an aerospace manufacturer, GE Aerospace would be expected to have exposure to materials such as titanium, nickel alloys, and fuel costs in its service operations, but the filing provides no quantitative detail on these exposures or hedging strategies, limiting investor ability to assess this risk dimension.

4. Equity Price Risk

Investment Portfolio

The filing references equity securities and equity method investments, particularly within the run-off insurance operations ($7.660 billion in unconsolidated VIE investments, up from $6.665 billion in 2024, reflecting a strategic shift toward higher-yielding asset classes) and a U.S. tax equity portfolio ($1.114 billion in onshore renewable energy equity method investments). Additionally, non-qualifying derivatives include hedges of deferred employee compensation, implying some equity-linked exposure on the liability side.

Mark-to-Market

The filing notes that Level 3 securities in the insurance portfolio are fair valued using non-binding broker quotes with unobservable inputs. The fair value table shows loans and other receivables (primarily insurance-related) with a carrying value of $2.197 billion vs. estimated fair value of $2.153 billion — a modest discount of $44 million.

Assessment

• Weakness: No explicit Value-at-Risk or sensitivity analysis is provided for the equity investment portfolio. The growing run-off insurance investment portfolio ($7.660 billion in unconsolidated VIEs) represents a meaningful and growing source of mark-to-market risk, particularly given the shift toward higher-yielding (and presumably less liquid) asset classes. The reliance on non-binding broker quotes for Level 3 valuation introduces valuation uncertainty.

5. Quantitative Measures

Sensitivity Analysis

Derivative Portfolio Summary (December 31, 2025 vs. 2024)

The total gross notional of the derivatives portfolio increased by $1.612 billion year-over-year, driven primarily by the large expansion of qualifying cross-currency interest rate swaps (from $416M to $3,550M combined), partially offset by a reduction in non-qualifying currency contracts.

Absence of VaR

No Value-at-Risk (VaR) methodology or stress test results are disclosed. The sensitivity analysis is limited to two simple shock scenarios.

Assessment

• Strength: The sensitivity disclosures are clear and directly quantified; the net derivative position is a modest net asset of $116 million ($187M asset less $71M liability), indicating the portfolio is not a significant source of balance sheet risk.
• Weakness: The absence of VaR, scenario analysis, or stress testing disclosures significantly limits the depth of quantitative risk assessment. The dramatic expansion of cross-currency interest rate swap notionals (from $416M to $3,550M) warrants more detailed disclosure of the associated risk profile.

Overall Summary Assessment

Strengths: GE Aerospace maintains a well-structured, policy-governed hedging program with explicit prohibitions on speculation. The fixed-rate debt profile limits interest rate earnings sensitivity, and the multi-instrument FX hedging program effectively insulates reported net income from currency movements. Improved credit ratings (A3/A- as of filing date) reduce refinancing risk and borrowing costs.

Weaknesses: Commodity price risk disclosure is effectively absent. Equity price risk in the growing run-off insurance portfolio lacks quantitative sensitivity measures. The large OCI volatility from net investment hedges ($798M loss in 2025) and the rapid expansion of cross-currency swap notionals are not accompanied by sufficient explanatory disclosure. The absence of VaR or stress testing frameworks represents a gap relative to best-practice market risk disclosure standards.