
Ongoing rotation commercial aerospace has moved past the worst of the Middle East fuel scare, for now. Jet fuel prices have corrected sharply from the conflict peak, while 2027 forward curves now imply USD103/bbl, down from USD112/bbl a month ago. History also suggests passenger demand can remain resilient through fuel shocks, with global traffic still growing at a healthy mid-single-digit pace during prior episodes. However, we expect 2026 growth in Available Seat Kilometres (ASK) – a measure for airline’s carrying capacity - growth to moderate at 1-2%, versus 5-6% pre-conflict. This is mainly due to Middle East airspace disruption, rerouting inefficiencies and airline scheduling discipline, rather than weak underlying demand. The backdrop remains supportive for the aftermarket, underpinned by installed-base flying hours, scheduled shop visits and tight MRO capacity. Replacement demand also remains intact, with few signs of aircraft cancellations or deferrals so far.
Recent 1Q26 updates showed that engine OEMs are still enjoying the cleaner earnings setup, while airframers remain hostage to delivery execution. GE Aerospace (GE US) beat consensus, with services revenue up 39% on higher shop visits and spare-parts demand. RTX (RTX US) also beat expectations and raised FY26 guidance, supported by 19% growth in Pratt & Whitney commercial aftermarket sales, although OE remained weak. Rolls-Royce’s (RR LN) trading update was also positive, with Civil Aerospace flying hours at 115% of 2019 levels, shop visits up 12%, OE deliveries up 18% and FY26 guidance reiterated. Airframe performance was more mixed. Airbus (AIR FP) earnings were just shy of consensus, with 1Q26 deliveries down y/y and below expectations as continued GTF engine shortages constrained the A320 ramp. Boeing (BA US) fared better, with revenue and core losses ahead of expectations, 143 deliveries, a record backlog and 737 production stabilising at 42/month.
We remain constructive on commercial aerospace, but prefer airframers over engine OEMs at current levels. The aftermarket story remains compelling but is also well understood, with earnings resilience and cash generation largely reflected in valuations. Airframers have the less perfect narrative, but the more attractive earnings setup. Replacement demand remains intact, cancellations and deferrals remain limited, while lower forward fuel prices should support aircraft into 2027. Even if airlines maintain capacity discipline to protect yields, airframers should face less downside risk than engine OEMs, as demand is anchored more by fleet replacement and scarce delivery slots than near-term aircraft utilisation. By contrast, engine aftermarket growth is more exposed to flying hours, utilisation and shop-visit timing. While Airbus and Boeing still face execution risk, easing bottlenecks and converting record backlogs into deliveries should drive stronger earnings and FCF ramp than the already well-owned engine aftermarket trade.

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