Amid ongoing aircraft delivery shortfalls and pressure on supply chains, commercial aftermarket demand and pricing is going to continue to boom, highlights TD Cowen; predicting that RTX and TDG are the most likely to benefit from ‘an extended upcycle’.
Estimating that airline capacity expansion is unlikely to reach around 3.6% per annum until 2026, likely lagging traffic demand, the increase of older aircraft’s in-service life will bolster suppliers’ ability ‘to hike prices well above inflation’. (RTS has indicated a 10% rise in catalogue prices for 2024, with GE and Safran both mentioning hikes of around 3-4% above inflation).
Within the broadest commercial engines and systems portfolio, commercial aftermarket sales equate to around 31% of RTX’s total sales (roughly two third of its profit), with TD Cowen predicting an above-guide 13% rise in aftermarket sales showing momentum until at least 2026.
Additionally, TDG’s high financial leverage allows it a high level of cash deployment flexibility, with the aftermarket asset consolidator describing it as ‘an elegant way to express a “long zero aftermarket view” without excessive cyclical risk’. TDG also alluded at an active merger and acquisitions pipeline during its Q1 earnings call, something predicted to only strengthen its stock.
Pratt & Whitney’s ongoing GTF issue is expected to impact the company’s cash flow by around $3bn between 2024-2026 as it seeks to fix 3,000 affected engines. However, despite its commercial engine fleet being only around a third of the size of GE’s. Pratt’s engine population is ‘apt to show 2024-2026 CGR of 7.4% vs GE’s 4.3’, suggesting its long-term aftermarket sales growth should be ‘at least comparable to GE’s’.
Commercial aftermarket sales to go from strength to strength
