Aerospace Industry Hopes for Iran Windfall
Pent-up demand plus boost in defense business bode well for the aerospace sector, despite the challenges.
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Although the Iran war clouds the horizon, the aerospace industry remains optimistic about 2026. Aircraft demand — civilian and defense — remains robust and could even see a significant boost because of the conflict. However, major risks abound.
On the civilian aircraft side of the business, Airbus and Boeing both have big ambitions that will run up against ongoing supply chain issues, technical difficulties and more. Airbus, for example, may struggle to meet its 870-jetliner delivery target amid problems with engine supplier Pratt & Whitney and long lead times for some materials, such as steel. Boeing’s output is still capped at 42 jets per month by the Federal Aviation Administration. While the company has experienced a major turnaround in recent years, ongoing problems with its flagship 737 Max aircraft could delay a long-awaited return to profitability.
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The industry could surpass its 2019 peak in aircraft deliveries if both get their acts together. With its current 55% market share, Airbus is expected to maintain the lead. But Boeing has an opportunity to stage a comeback. Last year was the first since 2018 that Boeing received more new orders than Airbus. Analysts say a new single-aisle jet to replace the 737 Max could further narrow the gap with Boeing’s European rival.
Bad times spell even more business for manufacturers of military aircraft. Lockheed Martin’s F-35 remains the world’s top-selling fighter jet. Meanwhile, Boeing has given its defense business a boost by landing a next-generation fighter contract. The so-called F-47 is on track to fly in 2028, with 185 orders already on the books.
The current foreign policy landscape also contains some major red flags for American defense contractors, who have long led the industry. Many countries are developing alternatives to United States-made and -designed aircraft, the most notable of which is the Global Combat Air Programme, a joint effort by the United Kingdom, Italy, Japan and maybe Canada. Its next-generation fighter jet may one day rival Lockheed’s F-35, especially if the current tensions persist between Washington and its longtime allies.
The Iran war remains a major wild card. Commercial aircraft manufacturers aren’t concerned about the near-term effects of the conflict. Only 6% of the 1,350 jets that Boeing and Airbus expect to deliver this year are destined for the Gulf states, whose carriers would be among the first to alter their fleet plans. Over the long term, Middle Eastern buyers account for 10% of deliveries through the end of the decade.
The longer the conflict, the greater the fallout. Elevated jet fuel prices could crimp travel demand and prompt airlines to defer deliveries of new aircraft. Airlines won’t be quick to cancel orders, given years of pent-up demand. More likely, the war will cause them to retire older jets in favor of newer, more fuel-efficient ones.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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