Cleared for Takeoff

Europe’s aerospace sector reaffirmed its global dominance at the 2025 Paris Airshow. Bolstered by strengthened supply chains, growing aftermarket demand and rising defence budgets amid geopolitical uncertainties, GAM's European Equity team believe the aerospace sector could be a high-flying opportunity for investors seeking attractive long-term growth.

23 June 2025

The Paris Airshow has come to a close for 2025. Aside from the usual large orders by airlines for Airbus and Boeing aircraft, there were three notable themes. Firstly, there are clear signs of improvement from the aerospace supply chain, which is encouraging for the aircraft production ramp up for Airbus. Secondly, the aftermarket, driven by spare parts for engines and equipment, continues to be very strong, driven by structural growth in air travel and a constrained supply of aircraft. Finally, Civil Aerospace companies such as Airbus highlighted the potential of their Defence businesses, which have yet to be fully recognised during the blistering rally of European Defence stocks so far this year.

We think the European Civil Aerospace sector is very attractive given high and long-term earnings growth from large backlogs and protection from very high regulatory and technical barriers to entry. Aerospace is an area where Europe has genuine global leadership, and is a key element of our excitement about investing in the region.

Supply chain optimism underpins Airbus' mid-term production targets

The most notable shift at this year’s airshow was the sense of tangible improvement across the aerospace supply chain — a theme echoed in Airbus’ Capital Markets Update. A key bottleneck in recent years has been engine deliveries, particularly from CFM (A320neo engine supplier). At the Airshow, Airbus said it sees an inflection point in the supply chain, and was explicit that recent shortfalls in engine supply were driven by temporary strike action rather than material or structural issues. Airbus also noted that the number of missing parts on its final assembly lines has decreased by over 40% since the beginning of the year. This improvement supports Airbus’ confidence in its ramp-up plan towards Rate 75 for the A320 family by 2027 after several challenging years post Covid.

“We see a real inflection point. Since the beginning of the year, the number of missing parts on the final assembly line has reduced by over 40%. This is a major difference in our ability to stabilise the system and stick to our plans."... "We are confident in the recovery plan on CFM in particular. Engine deliveries have been impacted by strike activity, not material shortages.”

—Florent Massou dit Labaquère, Airbus Executive Vice President, Operations , Paris Airshow update

Aftermarket momentum remains robust, reflecting supply/demand dynamics

The engine parts aftermarket remains very strong, driven by constrained supply for new aircraft and continued strong demand for air travel. At the Airshow, MTU Aero Engines revised its 2025 guidance upward, citing increased demand for maintenance and spare parts due to the extended life cycles of older aircraft. MTU highlighted that shop visits are becoming heavier and more complex, particularly for the V2500 and GEnx fleets, as airlines look to prolong the life of in-service engines amid limited access to new deliveries. The company now expects its commercial Maintenance, Repair and Overhaul (MRO) revenues to grow in the mid-to-high teens for 2025, a meaningful upgrade from earlier expectations. Due to the oligopolistic structure of the engine supply chain and ongoing supply constraints, pricing power remains robust. This dynamic continues to trend pricing well above inflation, reinforcing aftermarket as a core, high-margin profit driver across the sector.

“Older aircraft are flying longer, which is very beneficial for our business model.”

— Lars Wagner, MTU CEO, CMD Presentation

Airbus Defence & Space - An underappreciated Defence asset?

The exceptionally strong performance of Defence stocks has dominated the narrative in Europe so far this year. However, Airbus Defence & Space, which is Europe's largest Defence contractor by sales (circa .EUR 12 billion sales in 2024), receives very little attention from the stock market. This underappreciated defence arm offers optionality at a time when European defence spending is accelerating. Airbus is involved in the Eurofighter, A400m, military helicopters, military satellites and connected intelligence. It is also a 37.5% holder of MBDA, Europe’s leading missile manufacturer, which is currently experiencing record demand, with EUR 4.9 billion of sales in 2024 and a EUR 37 billion order backlog. Airbus also highlighted its exposure to military drones, such as Flexrotor, which received its first order from Australia's Drone Forge at the airshow. Airbus is also in ongoing talks with Thales and Leonardo on a merger of its space businesses to create a consortium similar to MBDA in a bid to compete more strongly with Space X. An update on the talks is expected in July.

Airbus defence and space focus areas for European Defence priorities

Aerospace offers long-term earnings visibility

Few sectors across global equities offer the same long-term earnings visibility as Civil Aerospace. Airbus’ order book — now approaching 9,000 aircraft — provides production coverage for 8-9 years, underpinned by demand for new fuel-efficient aircraft and regulatory pressure for fleet renewal. Likewise, engine suppliers like MTU benefit from life-cycle aftermarket contracts that mirror these airframe deliveries and are extended further by elevated shop visit intensity. The Civil Aerospace sector also has very high barriers to entry, owing to the immense capital requirements, strict regulatory certifications, and the need for highly specialised technology and expertise. Our all-in return assumptions for both Airbus and MTU are grounded in this extended visibility.

Airbus' narrowbody backlog covers 9 years of production at consensus rates (with no new orders)

Conclusion: airshow reinforces conviction in European aerospace

The 2025 Paris Airshow affirmed the strength of our conviction for owning stocks in the European Aerospace sector. Supply chain improvements have the potential to unlock higher production rates for Airbus. The aftermarket continues to benefit from a favourable supply/demand environment setup, with positive signals across the entire value chain. Airbus' overlooked defence exposure provides underappreciated optionality, and the visibility into both companies' future earnings streams remains among the best in European equities.

Tom O’Hara, Jamie Ross and David Barker manage European Equities strategies at GAM Investments. You can find out more information on the team and the strategies they are responsible for here.

As at 19 June 2025, Airbus and MTU Aero Engines are holdings in the strategies managed by the team.