Aerospace Trends 2022 and Beyond
As the aerospace industry climbs back from its worst decline in history, headwinds continue yet bright spots such as booming business jet demand, strong air freight traffic, and a rapidly recovering aftermarket are also emerging.
Moreover, innovation aimed at making flying more sustainable will accelerate markedly in 2022.
We’ve highlighted the most important aerospace trends 2022 and beyond, assessing what they mean for an industry that is finally regaining its footing and beginning to look to the future.
International and Business Travel Recovery Slower than Many Anticipate
While our forecast calls for 2022 domestic traffic to begin approaching 2019 levels, international passenger traffic this year will remain well below pre-pandemic activity.
The slow rebound in international demand will weigh on widebodies and over the mid-term push airlines to adopt longer range narrowbodies like the A320neoXLR, which allow them to continue flying international routes but at much lower block hour costs.
Concomitantly, airlines will finally begin to admit that business travel isn’t back to 100% of pre-pandemic levels.
A sizeable portion of intracompany travel – roughly 20% of all business trips – is a thing of the past and even client-related travel is likely to remain muted for some time. Similar to weak international air traffic, lagging business travel holds significant implications for OEMs and their suppliers.
Aftermarket Continues to Grow
The aftermarket has led the recovery and activity is now ~75% of pre-pandemic levels thanks primarily to a domestic travel rebound. During 2022 we anticipate the aftermarket to grow but looking under the surface will reveal winners and losers.
Companies exposed to narrowbodies, and cargo aircraft will enjoy stronger tailwinds, while ones focused on older, passenger widebodies will continue to lag and may find their business settling out at a permanently lower run rate due to widebody retirements.
Moreover, the wave of used serviceable material (USM) we’ve previously flagged will finally begin to enter the market as airlines finally start to make fleet retirement decisions.
But this USM supply is not a bad news story for everyone as tear down shops, USM specialists, and OEMs with a strong USM presence all stand to benefit.
Business Jet Boom Rolls on but Flight Activity Moderates
The post-COVID boom in business jets is durable and we anticipate OEMs, whose backlogs are at 6-year high, will judiciously ramp production. This will allow the industry to avoid its typical boom-bust cycle and extend growth in deliveries past 2023.
That said, demand for private flights will moderate towards the end of 2022, going into 2023.
The impact of this will be felt by business jet MRO providers, forward base operators, and charter operators. Fractional operators on the other hand will continue to grow on the back of stickier, long-term contracts.
Supply Chain and Manufacturing Challenges will Continue
Supply chain constraints will continue putting a crimp in OEM plans to ramp up business jet and narrowbody production. Business jet OEMs are indeed busy ramping production, but they’ve claimed it could be 10%-15% higher if the supply chain was running smoothly.
Adding to these supplier challenges is a labor shortage impacting OEM’s production lines and engineering departments.
In 2022 we’re anticipating at least one OEM to announce that previously planned increases in production will materialize more slowly than anticipated due to supplier bottlenecks.
Companies with visibility into their supply chain and its constituent suppliers will outperform those that struggle to understand what’s going on.
Non-Core and Distressed Assets Go Up-for-Sale
After spending the past two years battling through weak demand, manufacturing disruptions, and myriad other business challenges, we anticipate the aerospace executives to turn their attention to reshaping their portfolios to align with the post-COVID world.
During the 2009-19 super cycle underperforming and/or strategically questionable assets could sit in aerospace and defense companies’ portfolios with little notice from sell side analysts or activist investors, but current market dynamics now dictate more streamlined and focused portfolios.
After seeing limited consolidation activity over the past few years, sellers are finally accepting lower multiples, which will fuel a steadier pipeline of commercial aerospace deals in 2022.
Private equity firms and strategic buyers will need to sharpen their pencils early in 2022 to be prepared to move quickly on these assets.
Air Cargo will Remain Strong
E-commerce and auto manufacturing, which combined account for roughly 30% of air cargo, coupled with elevated containership pricing will drive air freight volume higher this year. At the same time, passenger belly space supply constraints will conspire to keep yields high.
Airbus has responded to booming air freight demand and looming emissions regulations impacting the legacy Boeing freighters from 2027 onwards by launching its first dedicated freighter aircraft, the A350F, in over a decade; Boeing has followed close on the heels of Airbus with the recent 777-8F launch.
Conversions are also booming. Despite additional capacity coming online and plenty of feedstock from retiring aircraft, widebody conversion slots are sold out through 2025.
Sustainability Drives Innovation
Growing desire to improve aviation’s environmental footprint is a silver lining of the COVID-19 downturn. As Rolls Royce Director of Aerospace Technology & Future Programs Alan Newby stated, “There is general pressure from both the public and government to try and grow back greener.”
Despite financial pressures, airlines are taking early steps to meet the 2050 net-zero emissions goal established ahead of the UN Climate Change Conference (COP26) in November 2021.
Sustainable Aviation Fuel (SAF) commitments increased fivefold in 2021, but SAF is not a panacea; there is significant variability in the emission savings relative to jet fuel based on feedstock and processing, and the forecasted supply in 2030 will only meet ~5% of airlines total fuel needs.
SAF is still a positive development, but 2022 will be memorable instead for the number of revolutionary low-emission, low-operating cost propulsion concepts that move from paper drawings to live demonstrations.
These technologies will not align with large aircraft for two or more decades, but start-up and legacy OEMs will still garner hundreds of new commitments this year for disruptive regional and commuter aircraft that can reshape travel under 1,000 miles and help enable longer-term upmarket applications.
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