- 3Q25 earnings momentum was strong, with engine OEMs outperforming on aftermarket and prompting multiple guidance upgrades
- Airbus reaffirmed its 820-aircraft target and Boeing returned to positive free cash flow, though execution risk remains with the 777X delay
- Aftermarket strength remains broad-based, driven by an expanding installed fleet, higher shop visit requirements and rising material throughput, while tariff impacts remain well contained through effective mitigation measures
- Aerospace sector is poised for growth in 2026, supported by c.4% global traffic expansion, rising aircraft utilisation and improving propulsion supply chains that enable higher aircraft deliveries
- We continue to prefer aircraft OEMs as rising build rates and improving engine availability offer greater operating leverage, while engine OEM margins may moderate with a higher OE mix. Defence procurement adds stability despite easing geopolitical tensions
Related insights
The commercial aerospace sector remains well positioned for growth into 2026 despite tariff noise. The demand backdrop remains constructive: global air traffic is expected to grow at around 4% in 2026, with aircraft utilisation continuing to firm up and supporting higher engine flying hours. Supply-chain conditions are steadily improving, particularly in propulsion, enabling a clearer path for increased aircraft deliveries next year as engine availability normalises. Aftermarket revenues are expected to see solid growth, supported by a larger installed fleet, higher shop visit requirements and rising material throughput across major engine platforms. Tariff impacts are proving manageable, with manufacturers highlighting effective mitigation through pricing mechanisms in long-term agreements, diversified global sourcing and operational workarounds that limit direct exposure. Taken together, these dynamics position the sector for continued top-line and cash-flow growth in 2026, even as residual bottlenecks and macro uncertainty persist.
Commercial aerospace companies mostly delivered strong updates in 3Q25, with engine OEMs clearly outperforming airframe OEMs. For the engine makers, aftermarket strength remains the defining theme, with shop visits, spare parts demand and LTSA-driven revenue running ahead of expectations as material availability improves and the installed base expands. This has driven guidance upgrades across GE Aerospace, Safran, RTX, and Rolls-Royce. Airbus reiterated its 820-aircraft delivery target, supported by a clearer engine outlook which also enables the completion of gliders in 4Q25. Boeing generated positive free cash flow for the first time in years and received Federal Aviation Administration (FAA) approval to lift 737 output to 42 per month, but is not completely out of the woods after taking a USD4.9bn charge and delaying the 777X to 2027. Overall, most companies maintained or upgraded guidance, indicating tariff effects are manageable relative to upbeat demand and improving aftermarket and production cadence.
We remain optimistic about the aerospace sector into 2026 but still prefer the aircraft OEMs. Aftermarket activity is set to remain solid, supported by persistent reliability issues on new-generation narrowbody engines, ongoing GTF fleet management, an ageing fleet and favourable economics for older aircraft in a low jet fuel environment. However, margins for engine makers are likely to moderate as the mix shifts toward higher OE deliveries. In contrast, aircraft OEMs should see growth accelerate from rising build rates and improving engine availability, underpinned by stronger operating leverage as production ramps. Defence procurement is also expected to remain robust despite a de-escalation of geopolitical tensions, adding stability to the sector’s earnings base and reinforcing our relative preference for the OEMs.
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