Share prices in the commercial aerospace industry have outpaced the broader market, growing ~80% since 2009, compared with ~20% growth in the S&P 500 over the same timeframe. Commercial aerospace firms saw their businesses and public valuations pummeled in 2009 during the worst of the “Great Recession”, but the cyclical industry has since rebounded considerably.
Strong financial performance, driven by solid fundamentals, has led to considerable outperformance in spite of challenges in some adjacent markets. Recently, B/E Aerospace and Triumph Group bested analyst estimates, a common theme throughout the past 10 quarters in the space. Aerospace firms have benefited from passenger and freight traffic consistently up on a year-over-year basis, growing capacity, increasing deliveries, and record OEM backlogs ($305 billion commercial airplane backlog at Boeing). The attractiveness of the commercial aerospace industry has borne an active M&A environment, returning billions of dollars to shareholders, and also reducing the supply of pure-play investment opportunities.
Given leading indicators, and the stabilization of macroeconomic threats experienced in mid-2011, the outlook for aerospace suppliers is bright. Convergence between major supplier deliveries and OEM build rates, as well as strong sector bookings for another consecutive quarter, provide certainty that the double-digit growth projected by companies such as TransDigm is achievable. Longer-term, the FAA Aerospace Forecast spells out 90+% air traffic expansion for U.S. carriers over the next two decades, laying the foundation for continued commercial aerospace share price gains.