Aerospace Strategy

Commercial aerospace enters the second half of the 2020s supply-constrained, not demand-constrained. The Boeing and Airbus backlogs ended 2025 at records of 6,713 and 8,754 aircraft respectively, a combined 15,467 jets, or roughly 11 years of production at 2025's 1,393 combined deliveries (Boeing and Airbus orders and deliveries reports). Both manufacturers' 20-year forecasts project demand for more than 42,000 new aircraft, about three quarters of them single-aisle (Boeing Commercial Market Outlook, Airbus Global Market Forecast). The industry's defining event of the decade, the January 2024 Alaska Airlines door-plug blowout and the FAA production cap that followed, turned 2024 into Boeing's trough year (348 deliveries versus Airbus's 766). 2025 was the recovery test: Boeing delivered 600 aircraft, its best year since 2018, regained FAA approval to lift 737 output from 38 to 42 per month, closed the re-acquisition of Spirit AeroSystems, and booked 1,173 net commercial orders. The constraint has shifted from Boeing's factories to the supply chain beneath both airframers, engines above all.

The more durable investment story sits below the airframers. Jet engines are sold near cost and monetized over 20 to 30 years of spare parts and shop visits: GE Aerospace's fiscal 2025 (record 1,802 LEAP deliveries, services revenue up 26 percent, a roughly 190 billion dollar backlog that is mostly services) is the cleanest illustration of why the aftermarket annuity, not the airframe, is where the sector's economics concentrate. Sole-source component suppliers with aftermarket pricing power earn EBITDA margins above 50 percent, and the delivery shortfalls of 2019 to 2025 aged the world fleet, handing the aftermarket its best demand environment in decades. The live tension for 2026 is a new demand-side shock: IATA cut its 2026 industry profit forecast from 45 to 23 billion dollars in June 2026 after the Iran-US conflict and a temporary Strait of Hormuz closure spiked fuel costs. A decade-deep backlog cushions the OEMs against a downturn; a prolonged fuel shock would test how much of that backlog converts to deliveries on schedule.

The roster sorts into five archetypes along the supply chain, with economics improving as you move from airframes toward the aftermarket. This is framing, not stock picking.

1. Airframers (Boeing, Airbus, Embraer, Textron Aviation). Volume businesses with decade-long backlogs but thin margins and high operational leverage. Boeing is a turnaround story gated by the FAA; Airbus is a ramp story gated by engines and suppliers; Embraer is the only third player at scale, with a record backlog spanning regional jets, business jets, and defense; Textron's Cessna and Beechcraft serve the separate business-and-general-aviation cycle.

2. Engine makers (GE Aerospace, Safran, Rolls-Royce, Pratt & Whitney inside RTX, MTU). The razor-and-blades core of the sector. CFM International, the 50/50 GE-Safran joint venture, powers every 737 MAX and most A320neos; Pratt's GTF powers the rest of the A320neo family; Rolls-Royce owns the widebody Trent franchise; MTU combines GTF risk-and-revenue sharing with one of the largest independent MRO networks. Services generate the majority of profits for all of them, which makes them installed-base annuities more than equipment makers. Note that Safran, Rolls-Royce, and MTU report in euros and pounds on European listings (SAF.PA, RR.L, MTX.DE).

3. Component and systems suppliers (TransDigm, Howmet, HEICO, Woodward). Where margins live. TransDigm's sole-source proprietary parts model produces EBITDA margins above 50 percent; HEICO attacks the same aftermarket from the opposite direction with FAA-approved PMA parts priced below OEM spares; Howmet supplies the airfoils, castings, and fasteners that gate the engine ramp; Woodward's fuel and actuation content rides both airframe and engine cycles.

4. Aftermarket and engine ownership (FTAI Aviation). A hybrid model: owning, leasing, and overhauling CFM56 and V2500 engines with a module-swap approach that monetizes the world's largest installed engine fleet as it ages. More cycle-exposed than the OEM aftermarket franchises, but leveraged to the same aged-fleet dynamics.

5. Lessors (AerCap). The financing layer. Lessors own roughly half the world's fleet, and AerCap is the largest; its lease rates, portfolio marks, and gains on sale are a real-time price signal on aircraft scarcity. Lessor economics benefit from delivery shortages (scarce aircraft appreciate) but carry rate, credit, and residual-value risk.

Cross-cutting framing: aftermarket and lessor exposure is the internal hedge of this sector. When Boeing stumbles and deliveries fall short, fleets age and the aftermarket names outperform; when the ramp succeeds, the airframers and their suppliers capture the upside. BA, GE, RTX, and Honeywell also carry large defense businesses covered in the Defense sector, so their aerospace story here is only part of their income statement. The right question is rarely which single name wins, but where in the chain the next three years of value accrues: recovery upside at the airframers, annuity compounding at the engines and suppliers, or scarcity pricing at the lessors.