Commercial Aerospace

# Executive Summary * The Commercial Aerospace industry is fundamentally constrained by persistent supply chain disruptions and production delays, leading to a historic aircraft backlog and creating significant headwinds for OEMs. * Workforce shortages and labor instability are exacerbating production challenges, pressuring margins through rising costs and creating operational risks, as seen in recent strikes. * Intense regulatory scrutiny is acting as a hard cap on production for key players like Boeing, while the path to certification remains the single most critical hurdle for the emerging eVTOL sector. * These constraints are shifting value towards the aftermarket, benefiting MRO and parts suppliers as airlines are forced to extend the life of existing fleets. * While decarbonization is a key long-term driver for R&D, near-term financial performance is dictated almost entirely by operational execution and supply chain stability. ## Key Trends & Outlook Persistent supply chain disruptions remain the most significant force shaping the commercial aerospace landscape, preventing manufacturers from capitalizing on robust post-pandemic travel demand. The global aircraft backlog has swelled to a historic high of over 17,000 planes in 2024, significantly higher than the pre-pandemic average of around 13,000 aircraft per year. This failure to deliver new aircraft is projected to cost airlines over US$11 billion in 2025 due to higher fuel, maintenance, engine leasing, and inventory holding costs associated with operating older fleets. This directly impacts OEMs like The Boeing Company, which continues to struggle with "traveled work" (tasks completed later than planned) on its 737 line, though it achieved a 50% reduction in "traveled work" and a 25% reduction in rework hours in Q2 2025. In response, industry leaders like GE Aerospace are implementing lean manufacturing initiatives such as its FLIGHT DECK operating model, which has led to a 35% year-over-year increase in material input from priority suppliers in Q3 2025, to improve supplier performance and mitigate bottlenecks. Layered on top of supply issues are critical workforce shortages and labor instability. The industry faces a massive long-term deficit of skilled pilots, maintenance engineers, and cabin crew, driving up wages and operational costs. In the near-term, this risk has manifested in production stoppages, creating a clear divergence between companies. GE Aerospace's recent five-year labor agreement with striking UAW workers in September 2025 provides a crucial competitive advantage in operational stability, ensuring continued production. This contrasts sharply with The Boeing Company, which endured a month-long strike in October 2024 and faces an unfair labor practice charge filed by IAM in October 2025. The current production shortfall creates a significant opportunity for the MRO and aftermarket services sector, as represented by firms like StandardAero, which leverages its Component Repair Services (CRS) to extend component life, benefiting from the need to maintain and upgrade aging aircraft. The primary risk is regulatory intervention, which for established players acts as a direct cap on revenue, as seen with the FAA's oversight of The Boeing Company's 737 production, though the 737 MAX production cap was lifted to 42 aircraft per month in October 2025. For emerging players like Joby Aviation, the entire business model hinges on successfully navigating a complex and evolving certification pathway, with Joby progressing through the FAA's five-stage type certification process and achieving 62% completion of Stage 4. ## Competitive Landscape The commercial aerospace market structure is dominated by a duopoly at the airframe level, primarily Boeing and Airbus, but features different competitive dynamics at the system and service levels. Various strategic approaches define the landscape, from integrated scale leaders to specialized aftermarket providers and nascent technology disruptors. At the top of the value chain, some players like GE Aerospace dominate through immense scale in critical systems like propulsion, leveraging a vast installed base to generate decades of high-margin service revenue. This core strategy involves dominating the market for specific, high-value systems through massive scale, deep integration with customers, and a lucrative, long-tail aftermarket business. Key advantages include enormous barriers to entry, pricing power on aftermarket services, and decades of locked-in revenue streams. However, these companies are vulnerable to highly complex and fragile supply chains, immense capital intensity, high sensitivity to production rates, and significant regulatory oversight. GE Aerospace, for instance, dominates the commercial engine market with its partner Safran through CFM International, relying on a massive installed base of engines that generates decades of high-margin service revenue. Another strategic approach is adopted by Aftermarket & MRO Specialists, who focus on the maintenance, repair, overhaul, and supply of parts for aircraft already in service. This model thrives when fleet utilization is high and new aircraft deliveries are slow. StandardAero, as a leading independent MRO provider, exemplifies this model, with its business directly boosted by airlines needing to keep their current fleets flying longer and more reliably due to the historic backlog of new aircraft. Advantages include being less cyclical than OEM production, benefiting from supply chain disruptions that delay new deliveries, and strong cash flow characteristics. Vulnerabilities include dependence on the size and age of the global fleet and competition from OEMs who also seek to capture aftermarket revenue. Finally, Emerging Technology Disruptors are developing and certifying entirely new aviation technologies, primarily electric vertical takeoff and landing (eVTOL) aircraft, to create new markets like Urban Air Mobility. Joby Aviation's entire corporate focus is on progressing through the FAA's certification stages, with its valuation based on the probability of it becoming one of the first certified eVTOL operators in the U.S. This strategy offers the potential to create and dominate a multi-billion dollar market, often with asset-light models that partner for manufacturing, and high valuation potential if successful. However, it carries extreme binary risk tied to regulatory certification, significant cash burn pre-revenue, and unproven market demand and operational economics. ## Financial Performance Revenue growth across the commercial aerospace industry is bifurcated and constrained, not by demand, but by production capacity. The industry-wide revenue picture is dictated by persistent supply chain disruptions and production capacity. While demand for new aircraft is strong, companies like The Boeing Company cannot recognize revenue faster than they can safely build and deliver aircraft, as enforced by the FAA. The Boeing Company's revenue trajectory is a direct reflection of its 737 delivery rate, which has been impacted by production caps and quality issues. In contrast, a company with heavy aftermarket exposure like TransDigm Group Incorporated shows more resilient growth, with its commercial OEM sales decreasing only 2.1% in H1 FY25, primarily impacted by the Boeing machinist strike, indicating a more stable revenue stream tied to flight hours. {{chart_0}} Profitability across the manufacturing value chain is experiencing significant margin pressure, with relative strength observed in the aftermarket segment. Margins are being squeezed by the combination of supply chain inefficiencies, inflation on raw materials, and rising labor costs. Rework and "traveled work" at companies like The Boeing Company and Spirit AeroSystems Holdings, Inc. are particularly damaging to profitability. The Boeing Company's operating margin is directly impacted by production inefficiencies and one-time charges related to program delays, such as the 777X program facing delays pushing first delivery to 2027 and incurring cumulative charges of approximately $15 billion. This contrasts with the historically strong and stable margins of an aftermarket-focused player like TransDigm Group Incorporated, which benefits from its proprietary aerospace components with significant aftermarket content. {{chart_1}} Capital allocation themes include a mix of debt management, strategic investment in production stability, and shareholder returns. Companies are allocating capital to navigate the current environment, including investing heavily in their own manufacturing facilities and supply chains to de-risk production. GE Aerospace's plan to invest $1 billion in its U.S. manufacturing sites in 2025 and hire 5,000 workers is a prime example of capital being deployed to directly address supply chain and labor constraints. Balance sheets across the industry present a mixed assessment, reflecting the diverse business models within commercial aerospace. Large, established players generally maintain strong balance sheets, while some have taken on debt to navigate recent crises. Established players like GE Aerospace are deleveraging and generating strong cash flow. In contrast, pre-revenue companies are entirely dependent on their cash reserves. Joby Aviation's balance sheet is best understood as a countdown clock, with its cash and short-term investments representing its runway to achieve certification and begin generating revenue for its eVTOL aircraft. {{chart_2}}