European aerospace and defence sector Report Interpretation

Overview

This weekly European aerospace and defence update combines sector news, company results, delivery tracking, investor positioning and valuation data. Goldman Sachs argues that aerospace execution is improving and defence fundamentals remain strong, but investors are looking for clearer proof of programme conversion, sustained earnings delivery and successful execution of capacity-led growth.

Core views

In aerospace, Goldman Sachs reports constructive feedback from its US roadshow with Airbus management. Discussions extended beyond near-term aircraft deliveries to medium-term earnings drivers: fixed-cost absorption, pricing, services and potential portfolio development. Management reiterated confidence in its production targets, citing improving engine availability and continued demand support across defence and services. The report argues that confidence in delivering the production ramp without further material supply-chain disruption could make investors more willing to recognize earnings opportunities in the late 2020s and early 2030s. The July delivery data broadly supported that argument. Airbus delivered 67 aircraft, close to Goldman Sachs' tracker estimate of 69, taking year-to-date deliveries to 418. Goldman Sachs continues to forecast 870 FY26 deliveries. July accounted for 7.7% of that forecast, modestly below the five-year seasonal average of 8.4%, while orders were stronger: 204 gross orders and only one cancellation lifted backlog to 9,358 aircraft. The report also notes Airbus's selection by Hisdesat to design, integrate and test the SpainSat NG-III secure-communications satellite, scheduled for a third-quarter 2030 launch. For OHB SE, Goldman Sachs initiated coverage at Neutral with a €250 12-month target price. The report sees scarce listed exposure to accelerating European space and defence-space investment and forecasts total output to rise from €1.25bn in 2025 to €4.0bn by 2030. It expects adjusted EBITDA margin to expand by about 300 basis points to 13.1%. H1 results supported the earnings-growth thesis, with adjusted EBITDA up 31% and FY26 guidance reiterated. However, Goldman Sachs judges that programme execution, capacity expansion and improved cash conversion will be necessary to realize the opportunity, and that valuation already reflects a meaningful portion of it. In defence, the report says results generally continued to outperform consensus and investor interest has begun to revive after some investors stepped away during the prior six months. The central issue is not the existence of a medium-term growth opportunity but the timing of major contract awards and the reliability of earnings conversion. US defence developments reinforce the demand backdrop: the Department of Defense agreed with Lockheed Martin and Northrop Grumman to expand capacity for Patriot PAC-3 and THAAD interceptor components, while reported depletion of ATACMS and PrSM inventories raised questions about readiness and replenishment needs. NATO's planned maintenance hub in Finland is also intended to localize rocket-system repairs and improve readiness. Rheinmetall's Q2 results were strong and in line with its pre-release. Sales rose 69% year-on-year to €3.29bn, 4% above company-compiled consensus, while operating earnings more than doubled to €562mn, 20% above consensus, producing a record 17.1% margin. Management said there were no material pull-forwards from Q3, and margins expanded across divisions, particularly Weapons & Ammunition, Vehicle Systems and Air Defence. Investor focus has shifted to the structure and timing of the proposed Boxer contract, the Arminius award and other second-half awards, including their implications for FY26 orders. RENK delivered a more reassuring update after a slower first quarter. Sales were broadly in line, adjusted EBIT was 1% above consensus and free cash flow was 19% above consensus. Record Q2 order intake of €613mn brought H1 orders to €1.20bn and book-to-bill to 1.9x; fixed backlog covers more than 90% of planned FY26 revenue. Guidance was maintained, with management targeting the upper half of its €255–285mn adjusted EBIT range, supported by improving Vehicle Mobility Solutions margins, though Slide Bearings remained weaker. Goldman Sachs concludes that RENK made progress on both order conversion and earnings delivery, whereas Rheinmetall still needs clearer confirmation of the timing and structure of major awards. The report's valuation and positioning materials frame this debate. It compares aerospace and defence companies on FY26–30E EV/EBIT and free-cash-flow yield, excluding OHB from the defence EV/EBIT comparison because it is a significant valuation outlier and excluding Dassault Aviation and OHB from the defence FCF-yield comparison because their cash flow can be more volatile than peers. It also tracks the GS EU Defence basket long-short crowding ratio as weighted institutional long notional divided by weighted short-interest notional, using S3 data. The overall conclusion is constructive but conditional: investors appear increasingly willing to revisit the sector, yet want evidence that pipelines turn into firm orders on schedule and that strong earnings growth remains repeatable.

Analysis framework

Goldman Sachs combines management-roadshow feedback, company earnings releases, delivery and order trackers, investor discussions, sector-news developments, positioning data and peer valuation comparisons. It assesses whether demand and programme pipelines are translating into deliveries, backlog, margins, cash flow and visible earnings growth.

Methodology notes

• Industry AnalysisSupply-demand framework

  Aerospace delivery, engine availability, orders, backlog and defence replenishment demand

  The report uses production and demand indicators to assess whether aircraft and defence-sector growth can be delivered and sustained.

• Valuation methods

  EV/EBIT and free-cash-flow-yield peer comparisons for FY26–30E

  The report compares forecast operating-profit multiples and cash-flow yields across aerospace and defence peers, with exclusions where comparability is distorted.

• Event-Driven and Behavioral FinanceFund-Flow and Positioning Analysis

  GS EU Defence basket long-short crowding ratio

  The ratio compares weighted institutional long holdings with weighted short interest to show investor positioning relative to history.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Airbus (AIR.PA)

  Covered aerospace company benefiting from improving engine availability, delivery-ramp confidence and demand in defence and services.

  Strengths

  Management reiterated production confidence; 67 July deliveries were broadly in line with the tracker estimate; backlog reached 9,358 aircraft.

  Weaknesses

  July deliveries were modestly below the five-year seasonal share of Goldman Sachs' FY26 forecast.

  Comparison

  July deliveries of 67 compared with Goldman Sachs' tracker estimate of 69.

  Risks

  Further material supply-chain disruption could undermine confidence in the delivery ramp.

• OHB SE (OHBG.DE)

  Covered European space and defence-space company; Goldman Sachs initiated coverage.

  Strengths

  Scarce listed exposure to European space investment; adjusted EBITDA grew 31% in H1 and FY26 guidance was reiterated.

  Weaknesses

  Growth requires significant programme execution, capacity expansion and better cash conversion.

  Comparison

  Excluded from the defence EV/EBIT comparison because its valuation is a significant outlier versus peers.

  Risks

  Valuation already reflects a meaningful proportion of the identified opportunity.

• Rheinmetall (RHMG.DE)

  Covered defence company central to the sector's order-conversion and earnings-growth debate.

  Strengths

  Q2 sales rose 69% year-on-year to €3.29bn; operating earnings reached €562mn and margin was 17.1%.

  Weaknesses

  Investor confidence remains dependent on visibility into major contract timing.

  Comparison

  Sales and operating earnings were respectively 4% and 20% above company-compiled consensus.

  Risks

  Timing and structure of Boxer, Arminius and other second-half awards remain key uncertainties.

• RENK Group (R3NK.DE)

  Covered defence supplier with improving evidence of order conversion and cash-flow delivery.

  Strengths

  Q2 order intake was €613mn; H1 book-to-bill was 1.9x; free cash flow was 19% ahead of consensus.

  Weaknesses

  Slide Bearings remained weaker.

  Comparison

  Adjusted EBIT was 1% above consensus and sales were broadly in line.

  Risks

  The report's earnings outlook depends on sustained margin improvement and continued execution against its backlog.

Key data

• Airbus July deliveries67 aircraftBroadly in line with Goldman Sachs' tracker estimate of 69; year-to-date deliveries reached 418.
• Airbus FY26 delivery forecast870 aircraftGoldman Sachs maintained its forecast; July represented 7.7% of the estimate versus a five-year seasonal average of 8.4%.
• Airbus July orders and backlog204 gross orders, one cancellation, 9,358-aircraft backlogOrder activity was stronger during July.
• OHB total output forecast€1.25bn in 2025 to €4.0bn by 2030Goldman Sachs expects adjusted EBITDA margin to expand by about 300bp to 13.1%.
• OHB H1 adjusted EBITDA+31%Supported the earnings-growth thesis; FY26 guidance was reiterated.
• Rheinmetall Q2 sales€3.29bn, +69% year-on-year4% above company-compiled consensus.
• Rheinmetall Q2 operating earnings and margin€562mn and 17.1%Operating earnings more than doubled and were 20% above consensus.
• RENK orders and backlog coverage€613mn Q2 order intake; €1.20bn H1 orders; 1.9x book-to-billFixed backlog covers more than 90% of planned FY26 revenue.

Impact & implications

Goldman Sachs sees the sector's fundamental demand and earnings backdrop as supportive. For aerospace, the key transmission is from improved supply availability and delivery execution to fixed-cost absorption, pricing and services earnings. For defence, replenishment needs and programme demand support growth, but market confidence depends on major awards converting into firm orders and on companies executing against backlog and margin expectations.

Risks

• Airbus's delivery ramp could face further material supply-chain disruption.
• OHB's growth plan requires successful programme execution, capacity expansion and improved cash conversion.
• Rheinmetall's order outlook depends on the timing and structure of Boxer, Arminius and other second-half awards.
• Slide Bearings remained weaker at RENK.

What to watch

• Airbus's progress toward its FY26 delivery forecast of 870 aircraft and evidence of sustained engine availability.
• Conversion of European defence programme pipelines into firm orders, particularly Rheinmetall's Boxer and other second-half awards.
• Rheinmetall's progress toward year-end revenue-growth and backlog expectations.
• RENK's delivery against maintained guidance and its targeted upper half of the €255–285mn adjusted EBIT range.
• Upcoming Q3 2026 earnings and trading updates for major European aerospace and defence companies.