Industry Credit Outlook: Aerospace & Defense
• Ben Tsocanos, Aerospace Director, S&P Global Ratings, says: "New aircraft production remains below demand, with both Airbus and Boeing sold out for years. They will continue to ramp up production as best they can, though supply chain challenges are likely to persist through 2025 and into 2026. Meanwhile, demand for air travel stays strong, with revenue passenger kilometers (RPKs) likely to continue hitting record highs, fueling solid demand for aftermarket services. Additionally, global risks and regional conflicts motivate strong defense spending, benefiting manufacturers with both commercial aerospace and defense exposure from robust demand on both fronts."
◦ Boeing’s setbacks delayed its aircraft production recovery and put significant pressure on its finances and ratings.
◦ Many issuers are building as fast as their supply chain will permit them to. Soaring demand is still being weighed upon by persistent supply chain/production turbulence.
◦ Trump 2.0 brings uncertainty to the defense world. Trump might pursue a defense policy that leaves European countries having to fill a military void.
• What are the key assumptions for 2025?
◦ Domestic and international flying hours will continue to hit record highs, bolstering already high demand for new aircraft and aftermarket services, except perhaps in APAC.
◦ Airframers boost build rates. Boeing ramps up 737 MAX production and deliveries, while Airbus increases production of its A320 models.
◦ Defense demand will remain elevated for some time as many governments realize that 20-30 years of peacetime has left their armed forces too small and antiquated.
• What are the key risks around the baseline?
◦ Delay in Boeing’s production recovery would hurt suppliers and airline customers and leave an opening for Airbus.
◦ Supply or labor constraints could hinder increased production, eroding profitability.
◦ Some problems are expensive to fix, and the next one is always around the corner. Boeing, for example, is still recovering from widespread quality problems uncovered in the January 2024 blowout.
