City Insider: Three three factors conspiring to produce unique business opportunities in MRO
Bruce Andrews, partner, and Max McFarland, senior associate, at Alderman & Company, explain why OEM backlogs, the space race and re-shoring are combining to create strong potential for A&D in aircraft maintenance
In our 24 years of exclusively selling middle market Aerospace and Defense (A&D) companies, we believe we are seeing a unique combination of events in the US that together have created the strongest potential business opportunities for A&D machine shops and service subcontractors.
The primary reason for the demand for A&D machine shops is the unprecedented backlog of work that has to be accomplished for the aircraft primes, Boeing and Airbus.
At the end of 2024, Airbus had a firm backlog of 8,658 aircraft, which, if delivery continued at 2024 levels, would take 11.2 years to manufacture.
Boeing had a firm backlog of 5,595 aircraft at the end of 2024, which, if delivery continued at 2024 levels, would take 17.9 years.
While the Boeing delivery rate will undoubtedly increase because it is overcoming its safety and quality issues, nevertheless, it will be double-digit years to accomplish the deliveries.
Another key reason, and often overlooked, for increasing A&D machine shop demand is the dramatic increase in space activity worldwide, to which the US is contributing 79% as of 2024.
To demonstrate its growth, there were 244 total launches into space in 2014, 586 in 2019, and 2,849 launches in 2024 (Source: United Nations Office for Outer Space Affairs).
The number of launches in 2024 has increased nearly 12 times from those of 2014.
Forecasts further indicate substantial growth in the 2024 launches, largely due to increased SpaceX missions to launch Starlink satellites in low Earth orbit (LEO), and those launches contracted by Amazon’s competitive Kuiper satellite telephone system, targeted at 3,232 satellites in Medium Earth Orbit (MEO).
There is further robust news for this sector of A&D machine shops in that virtually all require manufacturing specialty subcontracting services in order to complete their product.
Many machined products need special coatings to prevent them from wear, corrosion, or other properties, they may require heat treating services, welding, and unique inspections such as ultrasonic or x-ray, etc.
Thus, the increased work that will necessarily have to be manufactured will require A&D-qualified machine shops as well as the unique requirements specific to the components that they are manufacturing.
Lastly, the Trump administration has a stated goal of re-shoring manufacturing back to the US.
This includes raw materials, finished components, and materials that are required by the aircraft manufacturers to build their product. These re-shoring efforts could be a boon for A&D Machine Shops.
Thus, not only will the large backlogs at Boeing, Airbus, SpaceX, Amazon, etc. need to be produced, but further demand and business from the effects of re-shoring could likely add to the domestic US A&D machine shop workload for years to come.
Preliminary data already show the beginning of a very strong A&D machine shop demand along with its respective supply base.
Job growth in US machine shops has grown from a low of 262,000 in 2021 to 277,000 in 2023, a recovery of 15,000 jobs (source: Federal Reserve Bank, St. Louis).
Furthermore, the dollar output grew from $36 billion in 2020 to $40.6 billion in 2021 from US machine shops, a 12% growth in one year, the most recent data available (source: Federal Reserve Bank, St. Louis).
Combining the unprecedented long-term demand of the aircraft and space companies with the likelihood of the impact of re-shoring efforts on US A&D machine shops and their respective supply base creates what we see as an enormous opportunity for the owners of these companies.