A Commercial Aerospace Rebound Fuels the 2024 Aerospace Industry Outlook

The Aerospace, Defense & Government Services market will continue to see growth into 2024, driven by commercial passenger aviation, geopolitical instability, and the continued push of digital transformation and technology innovation, according to a new industry report released by the Aerospace, Defense and Government Services investment banking team from BGL. The following is a brief excerpt from the report. 

Globally, A Return To Pre-Pandemic Air Traffic Levels Is Expected In 2024

Globally, a return to 2019 air traffic levels is expected in 2024. According to Airports Council International (ACI) World, global passenger traffic is projected to reach 9.4 billion passengers in 2024, or 103% of the 2019 level. In North America, passenger traffic is forecasted to reach 2.1 billion passengers in 2024, or 104% of the 2019 level.

Domestic business travel is continuing to recover, according to U.S. Travel Association (USTA) forecasts. Volume is projected to return to 95% of 2019 levels in 2024—up from 89% in 2023. Slowing economic growth will push a full recovery to pre-pandemic levels by 2026, said the USTA.

Americans are returning to domestic and international flights with revenue passenger miles flown remaining slightly lower than pre-COVID-19 levels.

Commercial Aircraft Backlog At All-Time High Level

Commercial aircraft backlog is at an all-time high, driven by increasing growth in passenger traffic and the replacement of technologically obsolete aircraft. According to the CAPA – Centre for Aviation (CAPA), Airbus’ 2023 backlog of 8,598 units (up 18.8% from 7,239 in 2022) is 11.7 years of production, and Boeing’s (5,600 units, 24.4% increase over 2022’s 4,500 units) was 12.8 years.

The CAPA cited a record global order backlog of 15,933 for 2023 (12.6 years of production), which compares to a pre-pandemic backlog below 10 years of production.

Airbus’ Q1 2024 results are equally strong, with an order book that grew to 8,626 units, up from 7,254 units in Q1 2023.

Airbus and Boeing reported another year-end gain in total deliveries for 2023, continuing the path to normalization from COVID-19 lows. In its 2023 earnings call, Airbus reported full-year deliveries of 735, up from 661 in 2022. Boeing reported 528 deliveries in 2023, which compares to 480 in 2022.

Aging Fleets, Cost Pressures, And Complex Systems Driving MRO Demand
Aging fleets, cost pressures, and complex systems are driving steady demand across segments, from engine maintenance and component repairs to airframe upkeep and frequent unit replacements. MRO is benefiting as fewer newer aircraft are entering the commercial fleet following production cuts, and in turn, necessary work is required to return older aircraft to service. Further, continued supply chain challenges are requiring airlines to delay aircraft retirements to meet increasing travel demand. Boeing stated plans to slow build rates on 737s for the first half of 2024 as it tightens quality and safety controls in response to the Alaska Airlines incident. Boeing delivered 83 airplanes in the first quarter of 2024, which compares with 157 in the prior quarter and 130 planes in the year-earlier period. “Demand for current generation aircraft and associated maintenance and parts requirements will remain strong,” said AAR Corp. CEO John Holmes in the company’s Q3 2024 earnings call, citing continued new aircraft delivery challenges as well as the geared turbofan (GTF) and other engine issues which are extending aftermarket demand.

The above was just a brief excerpt from the full report. Inside this report, we explore these compelling themes in greater detail through our proprietary research in the space. Our insights revealed several key learnings:

• Demand for Aerospace, Defense and Government Services firms is expected to increase, supported by prepandemic demand levels for commercial passenger aviation, continued geopolitical instability, and a strong customer appetite for technology advancements across hardware, software, and services.
• Key challenges that face leaders consistently revolve around a labor shortage for talented employees and complexity across a global supply chain.
• Despite the softness of M&A activity in 2023, secular tailwinds are supporting activity and interest as investors look to capitalize on technology innovation, as global threats continue to proliferate

Contact our Aerospace, Defense & Government Services Investment Banking Team. Led by William F. Farmer, BGL’s ADGS investment banking team advises middle market companies across the aerospace, defense, and government services industry. Please reach out via our our contact form below to learn more.