Commercial aerospace aftermarket remains strong, while defense demand is focused on missiles, space, and new forms of warfare
AI summary card
Commercial aerospace aftermarket remains strong, while defense demand is focused on missiles, space, and new forms of warfare
At the Strategic Decisions Conference, Bernstein compiled the views of twelve aerospace and defense CEOs and concluded that commercial aerospace is supported by Boeing production increases and the aftermarket, while defense is driven by demand for missiles, air defense, space, shipbuilding, and unmanned systems.
- Commercial aerospace companies generally have not seen demand slowing due to high oil prices, and visibility on aftermarket orders and engine maintenance remains strong.
- Boeing 737 has passed the FAA's key review for capacity at 47 aircraft per month, and discussions continue around potential rates of 52, 57, and even 63 per month; the 787 target is to reach 10 aircraft per month by year-end.
- Defense companies are generally constructive on the 2027 budget direction, though they are not assuming it reaches the $1.5tn level proposed by the government; missiles, missile defense, and space remain the hottest areas.
- The missile capacity framework targets 3x to 4x current output within five to seven years, creating supply chain opportunities in solid rocket motors, microelectronics, and structural components.
- Anduril emphasized low cost, rapid iteration, the Lattice software platform, and a vertically integrated supply chain, highlighting how new defense-tech entrants are challenging the traditional prime contractor model.
Report interpretation
Overview
This report is Bernstein's aerospace and defense conference takeaways from its Strategic Decisions Conference, covering management views from companies including Anduril, Boeing, GE Aerospace, General Dynamics, Howmet, L3Harris, Lockheed Martin, Northrop Grumman, RTX, BAE Systems, and ATI Materials. The core conclusion is that commercial aerospace demand continues to be supported by Boeing production increases, aftermarket maintenance, and growth in the installed base of engines, while defense demand, though affected by uncertainty around the 2027 budget, remains strong in missiles, space, shipbuilding, autonomous systems, and counter-drone areas.
Core views
In commercial aerospace, high oil prices have not yet caused airlines to defer deliveries or reduce maintenance, and demand remains strong in the aftermarket for engines and equipment. Boeing's production recovery has improved supplier expectations, but simultaneous growth in OE and the aftermarket continues to pressure the supply chain. In defense, companies generally expect budgets to move higher, with missiles and missile defense the clearest growth areas, while space and shipbuilding also retain strong budget support. New defense-tech entrants, especially Anduril, are changing the traditional defense procurement and production model through rapid development, fixed-price contracts, software platforms, and vertical integration.
Analysis framework
The report uses a bottom-up synthesis approach in conference-note form, first summarizing conference-level themes in commercial aerospace and defense, then reviewing CEO comments company by company on capacity, demand, budgets, supply chains, contract models, and capital investment, and mapping this management feedback to industry investment implications.
Methodology notes
Extracting common themes from CEO remarks
By comparing comments from twelve CEOs at the same conference, the report identifies shared views across companies on demand, capacity, budgets, and supply chains, forming an assessment of industry momentum and risks.
Assessing demand strength and supply constraints together
The commercial aerospace section focuses on Boeing and Airbus production, engine and equipment aftermarket demand, inventory digestion, and supply chain pressure; the defense section focuses on budgets, missile capacity, solid rocket motors, space, and shipbuilding throughput.
Speed, cost, software platforms, and vertical integration
The Anduril case is used to show how new entrants can challenge the traditional prime contractor model through faster development, low-cost scalable products, the Lattice software platform, fixed-price contracts, and in-house development of key components.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Commercial aerospace supply chainSupported by Boeing production increases, aftermarket maintenance, and growth in the installed base of engines
- Strengths
- Strong aftermarket demand, high visibility on shop visits, and recovering Boeing 737 and 787 production improve OE demand.
- Weaknesses
- Simultaneous growth in OE and the aftermarket is creating supply chain pressure, and inventories of some components still need to be worked down.
- Comparison
- Compared with defense budget-driven segments, short-term demand evidence is more direct in commercial aerospace.
- Risks
- If high oil prices persist and pressure airline profitability, they could affect discretionary spending such as cabin interiors and avionics upgrades.
- BoeingA core variable in the recovery of commercial aircraft production
- Strengths
- The 737 passed the 47 aircraft/month review, the 787 targets 10 aircraft/month by year-end, and China's initial commitment for 200 aircraft may convert into orders.
- Weaknesses
- Low efficiency in the early stage of the new Everett line will weigh on margins; the 787 is affected by engine supply and seat certification, while 777X cash flow pressure extends into 2026-2027.
- Comparison
- Suppliers are reacting positively to Boeing's production recovery, but demand pull from the Airbus A350 is slower than expected.
- Risks
- Certification delays, supply chain bottlenecks, failure to reallocate deliveries, and losses on fixed-price programs.
- GE AerospaceA beneficiary of engine aftermarket demand and long-term LEAP profitability improvement
- Strengths
- Strong aftermarket demand, continued CFM56 demand, expanding LEAP installed base with aftermarket profitability already emerging, and aeroderivative engines benefiting from data center demand.
- Weaknesses
- In the short term, it is still affected by flight cycles, Middle East disruptions, and customer financial conditions.
- Comparison
- Compared with airframe manufacturers, the engine aftermarket offers stronger order visibility and maintenance stickiness.
- Risks
- Airline financial pressure, slower-than-expected recovery in engine supply, and commercialization uncertainty for the next-generation RISE program.
- RTX / Raytheon / Pratt & Whitney / Collins AerospaceExposed simultaneously to missiles, defense electronics, engines, and aerospace systems
- Strengths
- Strong missile demand and high backlog at Raytheon, while Pratt and Collins are supported by the commercial aerospace aftermarket and production recovery.
- Weaknesses
- Some programs are constrained by supply chains, engine issues, or fixed-price contracts.
- Comparison
- Compared with pure commercial aerospace companies, RTX has more balanced exposure across commercial and defense.
- Risks
- Budget delays, missile capacity ramp-up, supply chain bottlenecks, and program execution risk.
- Lockheed Martin、Northrop Grumman、L3HarrisMajor beneficiaries of demand for missiles, air defense, solid rocket motors, and space
- Strengths
- Very strong demand for missiles and missile defense, broad emphasis on solid rocket motor expansion across multiple companies, and space widely seen as a high-growth area.
- Weaknesses
- Growth requires long-term capacity investment, supply chain multi-sourcing, and government contract execution.
- Comparison
- Compared with traditional platform programs, missiles, space, and autonomous systems are closer to the current focus of incremental budget growth.
- Risks
- 2027 budget implementation below expectations, drag from continuing resolutions, and inability of the supply chain to expand capacity on schedule.
- HIIA representative of the shipbuilding budget and throughput improvement theme
- Strengths
- Shipbuilding is receiving substantial funding and has high backlog, while shipyard throughput is improving as labor and supplier issues ease.
- Weaknesses
- Completion of new ships remains operationally challenging over the long term.
- Comparison
- Compared with missiles, shipbuilding demand depends more on long-term capacity and labor improvement.
- Risks
- Shipyard efficiency, labor shortages, supplier deliveries, and budget timing.
- AndurilA representative of new defense-tech entrants and autonomous systems
- Strengths
- Fast growth, ownership of the Lattice software platform and key programs such as CCA, and emphasis on low cost, rapid time-to-market, and vertical integration of key components.
- Weaknesses
- High growth requires facilities, equipment, and personnel to be built in advance, with high capital intensity and delayed free cash flow.
- Comparison
- Compared with traditional primes, Anduril places greater emphasis on commercial-style contracts, fixed-price production, software definition, and manufacturability.
- Risks
- Execution is the core risk; many new entrants may be acquired by large primes or exit within five to ten years.
- Howmet、ATI MaterialsBeneficiaries of the aerospace engine, industrial gas turbine, and missile supply chains
- Strengths
- Aerospace engine technology can be transferred to industrial gas turbines, data center demand boosts IGT opportunities, and missiles may also become a new supply chain growth market.
- Weaknesses
- They need to serve OE, aftermarket, IGT, and defense demand simultaneously, creating pressure on capacity and delivery.
- Comparison
- Compared with OEMs, the investment case is more tied to higher capacity utilization in materials and components.
- Risks
- Customer production cadence, raw material and processing bottlenecks, and missile demand frameworks failing to materialize.
Key data
- Number of participating CEOs12Covering aerospace and defense companies including Anduril, Boeing, GE Aerospace, General Dynamics, Howmet, L3Harris, Lockheed Martin, Northrop Grumman, and RTX.
- Boeing 737 production cadence47 aircraft/month has passed the FAA key review, with subsequent discussions around 52, 57, and 63 aircraft/monthManagement said the 737 line has begun operating at 47 aircraft/month, with support from the Everett north line for higher output.
- Boeing 787 production targetReach 10 aircraft/month by year-endCurrently around 8 aircraft/month; engine supply recovery and seat certification still affect delivery cadence.
- Engine aftermarket visibilityAbout 12-18 months or longerGE said repair orders and shop visits backlog can protect 2026 financial performance, and the 2027 aftermarket is still expected to maintain double-digit growth.
- LEAP deliveries and long-term aftermarketLEAP deliveries up 63%, installed base expected to more than double from 2025 to 2030GE expects LEAP aftermarket profit dollars by 2030 to be comparable to those of the CFM56.
- Missile capacity expansion frameworkReach 3x to 4x current output within five to seven yearsBoth Lockheed Martin and RTX described strong missile demand, and related contracts are expected to include compensation mechanisms if demand does not materialize.
- Raytheon order visibilityTTM book-to-bill of 1.5x, backlog of $74bnThis backlog does not yet include new missile framework agreements or Golden Dome opportunities.
- Anduril scaleAbout 10,000 employees, 2025 revenue slightly above $2bn, could double in 2026Management said revenue could potentially reach the $30-40bn range within five years, with execution as the key risk.
- Anduril sustainment revenue assumptionAbout 20% of initial product sales per yearDuring the high-growth phase, revenue remains more production-heavy; as growth slows, the share of sustainment and recurring service revenue will increase.
Impact & implications
From an investment perspective, commercial aerospace suppliers and engine aftermarket companies have relatively high short- to medium-term visibility. Boeing's production recovery will improve demand across the OE chain, but will also intensify supply chain capacity pressure. In defense, opportunities are concentrated in missiles, air defense, space, solid rocket motors, shipbuilding, and counter-drone, but the 2027 budget, congressional approval, and contract timing remain key variables. The rise of new entrants may push traditional primes to accelerate adjustments in autonomous systems, software platforms, cost efficiency, and partnerships with innovative companies.
Risks
- If high oil prices persist, they will weaken airline profitability and could affect discretionary spending such as avionics upgrades and interiors.
- Simultaneous growth in commercial aerospace OE and the aftermarket may continue to intensify supply chain pressure.
- Uncertainty remains around congressional approval and the actual size of the 2027 U.S. defense budget.
- Capacity expansion in missiles, solid rocket motors, microelectronics, and structural components may be constrained by the supply chain.
- Boeing certification, 777X cash flow, 787 delivery bottlenecks, and fixed-price defense programs could drag on profits.
- New entrants such as Anduril need to continue proving execution capability, and high capital investment will delay free cash flow.
- Space programs, especially demand related to Golden Dome, still lack sufficient clarity.
What to watch
- The actual stability of Boeing 737 as it moves from 47 aircraft/month toward 52, 57, and 63.
- Whether the 787 can reach 10 aircraft/month by year-end, and whether engine supply and seat certification improve.
- How long high oil prices persist and whether airlines begin to defer deliveries or maintenance.
- Shop visits, LEAP aftermarket profit, and 2027 growth guidance from GE and other engine companies.
- The final size of the FY2027 defense budget, continuing resolution risk, and supplemental funding.
- Implementation of missile framework agreements, solid rocket motor multi-sourcing, and capacity expansion contracts.
- Budget and contract clarity for space programs such as Golden Dome, LEO constellations, and space interceptors.
- Program progress for Anduril's CCA, low-cost cruise missiles, interceptors, hypersonics, and the Lattice platform.
- Whether shipyard throughput improvement can translate into better deliveries and profit for shipbuilders such as HII.