Can The “Wave Of Replacement Jet Demand” Revive Boeing?

Goldman analysts remain “bullish on commercial aerospace into 2025,” forecasting a replacement wave of aging commercial jet fleets by the end of the decade. This bullish view comes as Boeing navigates a turnaround period following challenges that include the twin Max jet crashes, mid-air incidents, production safety vulnerabilities, a seven-week factory strike, and mounting financial pressures. Encouragingly, production at Boeing’s Renton factory in Seattle has restarted, marking a positive step forward for the company.

Analysts Noah Poponak and Anthony Valentini cited the latest global air travel data, which shows a healthy recovery in flights to their pre-pandemic level. 

Boeing and Airbus have seen a strong aircraft order cycle and years of backlogs. 

“Air travel demand has largely recovered, bringing with it a renewed wave of aircraft demand thanks to both capacity and replacement needs. Boeing and Airbus are supplying aircraft well below this demand as the supply chain continues to experience delays, materials shortages, and other issues,” the analyst said, adding, “Boeing production has been curtailed by product quality improvements following the Alaska Airlines MAX incident at the beginning of 2024, and was further delayed by the IAM Union workers’ strike in September. We think the supply chain will continue to normalize throughout 2025.” 

Poponak modeled aircraft deliveries recovering to 2018 levels in 2026. He expects “global air travel exceeds pre-pandemic in 2025, and that higher retirement demand will support elevated new aircraft orders.” 

“Aerospace is a long-cycle industry, and we believe that 2025 will be another early year in a multiple-year recovery ahead,” he said. 

Aircraft retirements have remained subdued since 2021, mostly because of low delivery volumes and production delays at Airbus and Boeing. 

What has piqued our interest is whether Boeing’s turnaround plan can be effectively implemented and production restarted smoothly in Renton. If successful, the company could position itself for a new era ahead of a replacement wave of commercial jet fleets expected to ramp up in the coming years. 

In markets, Boeing shares have been clobbered over the years, trading in a tight range between $100 and $250. 

Here’s why the analysts are bullish on Boeing:

Boeing has a new CEO, IAM union workers have returned to work following a 50+ day strike, and the company raised $21bn of new equity capital, resolving near-term liquidity and credit rating concerns as the company heads into 2025. Boeing still needs to solve a number of challenges going forward, but we think much of that is priced into the stock at this point. We view Defense leadership changes and the exploration of non-core asset sales as positive steps in Boeing’s efforts to normalize the earnings power of those businesses. We think Boeing can produce ~38 MAX and ~8 787 / month by 3Q25, at which point we expect the company to begin generating positive free cash.

The analysts listed other “Buy” recommendations within the aviation industry:

• Woodward – Buy, on the CL: WWD’s significant content gains on next generation narrowbody aircraft – thanks largely to content gains on the LEAP and GTF engines – will create an installed base that should drive substantial aftermarket revenues to the company over time. The company’s Industrial business has pieces that can create quarterly volatility, but it also has a potential much larger secular growth business in power generation, while core margins in the segment are moving higher.

• GE Aerospace – Buy: We expect GE’s LEAP engine to continue driving meaningful share gains, and think it is likely that engine shop visit and aftermarket growth will remain strong for several years. GE is still dealing with supply chain issues, which at times forces it to rationalize where it sends limited components, but the company remains focused on increasing commercial engine output. This should drive even higher levels of aftermarket activity once those engines become part of the installed base. We think margins likely have upside from here as GE passes through pricing, particularly on LEAP, and as LEAP aftermarket matures, allowing the company to return excess cash to shareholders through dividends and buybacks.

• Howmet – Buy: We think HWM’s initial FY25 revenue outlook (+7.5%) is conservative as the company continues to benefit from increased spares volumes and pricing given industry-wide engine time on wing issues and low OEM production rates. The stock has moved higher and has a relatively high bar, but we think the multiple re-rating is warranted given the potential for this business to outgrow its end market through pricing and share gains, as well as its history of shareholder-friendly capital deployment.

• CAE – Buy: CAE has a high-quality aerospace business that drives recurring revenues, above end-market growth, and strong margins thanks to its large share of the simulation and training market. The defense business is showing improvement as CAE works through challenged contracts and books higher quality revenues, and we think the stock is attractive given CAE’s discounted valuation.

• Ducommun – Buy: As OEMs ramp production to meet strong demand, we expect DCO to benefit from its exposure to aerospace OEs. DCO is also growing its aerospace aftermarket exposure and share in defense end-markets, leveraging both price and cost to expand margins. We think the business can drive substantial earnings growth over time and currently trades at a discount to peers.

• TransDigm – Buy: As an M&A compounder with high aftermarket exposure, TransDigm operates one of the best business models across our coverage, and we think it should remain a core holding in the aerospace supply chain. The company has an extensive track record of operating performance, margin expansion, and efficient capital deployment, which we expect to continue in spite of renewed scrutiny around TDG’s sale of spare parts to the DoD and its pricing model.

• HEICO – Buy: Heico is well-positioned within the aerospace supply chain as one of the more unique business models we cover. The Wencor integration is progressing well (product portfolio combinations, cross-selling, resource sharing), and significantly expands HEI’s presence in aftermarket PMA. Going forward, we think HEI has the ability to grow share, pricing, and compound cash flow over the long-term as it executes on strategic M&A.

• Textron – Buy: The business jet end market remains structurally healthy, and the company expects Aviation operations to normalize by the start of 2025, which should benefit from slipped 4Q aircraft deliveries. Bell continues to be a bright spot for the company, which has experienced strong helicopter deliveries and solid FLRRA momentum, which we expect to continue.

• Bombardier – Buy: With nearly $15bn in backlog, BBD has a multi-year runway for aircraft delivery and free cash growth. The tight supply / demand dynamic in the business jet market favors the OEs who can pass on price, and BBD’s recurring high-margin services business continues to grow. At only ~8X our 2026 FCF estimates, we think BBD is attractive at current levels.

• Embraer – Buy: Embraer has a solid position in the regional jet market, business jet supply / demand remains tight, and the company has growth ahead in its defense business from the KC-390. The company is improving its margins and cash flow as management drives operating performance, which we expect to continue.

Forward-looking valuations across aerospace do not appear ‘bubbly’ like other parts of the market. 

The forecasted wave of replacement jet demand could offer Boeing a much-needed boost, lifting it out of its multi-year bear market in the years ahead. Keep in mind that aerospace is a long cycle.