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Investing in Disruption: Perspectives on the Aerospace Industry

Global Team Perspectives by Jay Stewart, CFA

Following the two tragic accidents involving Boeing MAX aircraft in 2018 and 2019, the FAA grounded the MAX until Boeing can demonstrate the improved safety of the plane. While this move has led to an array of problems for Boeing’s customers and suppliers, other global investment opportunities have been created.

Initially, Boeing management thought that getting the MAX back into the air would be a quick fix. However, as the FAA and other regulatory authorities have further scrutinized the aircraft, obtaining regulatory approval has proven more strenuous. Aside from making the required hardware and software updates to the aircraft, Boeing recently reversed course, and recommended additional simulator training for MAX pilots. This simulator training will help ensure that pilots are properly educated and prepared to operate the new aircraft. It also improves the outlook for firms that provide airlines with pilot training and flight simulators.

The grounding of the MAX has also resulted in higher utilization of older planes to offset the lack of new capacity. This benefits leasing companies and should translate to higher aftermarket parts and services revenues for engine and wear-part manufacturers. Furthermore, while many of Boeing’s larger customers have typically given the company its entire order for aircraft, recent airline CEO commentary has alluded to the potential for a more diversified fleet strategy to reduce dependence on one manufacturer.

Finally, demographics also support global growth opportunities in the aerospace industry, as citizens in emerging markets become wealthier and begin flying for leisure and business travel. Our global and international portfolios include companies that we believe will benefit from the secular trend of growing global airline traffic. The global leader in civil aircraft simulation and training services is a Canadian company, while Boeing’s main competitor is based in France. We believe both should benefit from long-term demand trends as well as short-term impacts from Boeing’s recent issues. Boeing estimates that the world will need an approximated 800,000 new pilots over the next 20 years to meet global demand, most of which will be outside of the United States.

New Pilot Demand, 2019 to 2038

new pilot demand 2019 to 2038


Against this backdrop, we see sustainable long-term trends for a global group of commercial aerospace companies that design and manufacture aircraft, service equipment, and train pilots.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. References to specific companies, securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to buy or sell. Investing in non-U.S. markets entails greater investment risk, and these risks are greater for emerging markets. The above commentary for informational and educational purposes only and shouldn’t be considered investment advice.

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