Extended Runway for Commercial Aero Recovery
Insight by Cai von Rumohr, Gautam Khanna, Helane Becker, John Miller, Jason Gabelman, Jack Ayers, CFA , Spencer Breitzke and John Miller
THE COWEN INSIGHT
Both the commercial aerospace aftermarket and OE are positioned for a long recovery, coming off 2020’s unprecedented traffic drop. In addition, we see increasing replacement demand, especially for widebodies, buoyed by climate concerns and an aging aircraft population.
EXTENDED UPSWING FOR THE COMMERCIAL AFTERMARKET & OE
Commercial aftermarket and OE are recovering. However, the extended upswing is ~25% below 2019 levels, with pent-up demand auguring solid gains in 2023. We expect this to hold true even if, at that point, we’re in a recession.
With supply chain issues limiting delivery ramp, aftermarket volume & pricing should be strong. Recovering air traffic, rising load factors, higher oil prices, an aging aircraft population, and growing climate concerns combine to suggest robust OE demand.
Widebody orders should pick up in 2023 as international traffic recovers and replacement becomes a larger issue. This is particularly relevant for widebodies, where populations are older. We think investors could bid up aerospace valuations as they realize this is more than just a short cyclical upswing.
AIRLINE TRAFFIC & CAPACITY TRENDS
This report features an in-depth examination of airline traffic/capacity trends as well as aftermarket & replacement demand factors. It also focuses on supply chain issues and the impact of growing climate concerns on aircraft demand with inputs from Cowen’s aerospace, airline, ESG, and alt-energy analysts to provide a wide perspective on the issue.
KEY TAKEAWAYS
We are extending our commercial upswing horizon through 2025 and are increasingly upbeat regarding widebody orders and a shift in demand toward replacement. However, there is opportunity for higher aftermarket sales/margins from recovering traffic and aftermarket pricing power.
WHAT TO WATCH
Watch for widebody order pick-up, monthly traffic, and delivery numbers. Also, the Congressional push out of the new cockpit alert deadline and potential traffic recovery in China are potential milestones.