The European Aerospace Sector: A Promising Opportunity for Sustainable Growth
15 JUL, 2025
By Tom O’Hara, Investment Director European Equities at GAM
The European aerospace sector reaffirmed its global leadership at the 2025 Paris Air Show. Firstly, there are clear signs of improvement in the aerospace supply chain, an encouraging factor for the production ramp-up of Airbus. Secondly, the aftermarket segment—driven by demand for engine spare parts and equipment—remains very robust, supported by the structural growth of air traffic and a limited aircraft supply. Lastly, civil aerospace companies such as Airbus have highlighted the potential of their Defence-related operations, an area still undervalued despite the strong rally in European Defence stocks so far this year.
We believe the European civil aerospace sector presents an extremely appealing profile, thanks to strong multi-year earnings growth fuelled by a substantial order backlog and very high entry barriers, both regulatory and technical in nature. Aerospace is a field in which Europe holds real global leadership, and it represents a key element underpinning our enthusiasm for European equities.
Supply Chain Optimism Supports Airbus’ Medium-Term Production Goals
The most notable development this year has been the tangible improvement across the entire aerospace supply chain—a topic also addressed in Airbus’ market update. One of the main bottlenecks in recent years has been engine delivery, particularly by CFM (supplier of A320neo engines). At the Show, Airbus indicated a turning point in the supply chain, clarifying that recent engine supply shortages were due to temporary strikes, not structural or material-related issues. Airbus also stated that the number of missing components on final assembly lines has fallen by more than 40% since the start of the year. This progress reinforces Airbus’ confidence in its plan to increase production of the A320 family, aiming to reach 75 aircraft per month by 2027, after several difficult post-Covid years.
Continued Momentum in the Aftermarket, Driven by Demand-Supply Dynamics
The engine spare parts market continues to perform strongly, fuelled by the shortage of new aircraft and ongoing strength in air travel demand. At the Show, MTU Aero Engines raised its 2025 guidance, citing increased demand for maintenance and spare parts due to the extended operational life of ageing aircraft. MTU noted that shop visits are becoming more complex, particularly for the V2500 and GEnx fleets, as airlines seek to extend the useful life of engines currently in service amid difficulties accessing new deliveries. The company now expects commercial MRO (Maintenance, Repair and Overhaul) revenue growth of 15%–20% in 2025, a clear upgrade from previous forecasts. Thanks to the oligopolistic engine supply chain and ongoing supply-side constraints, pricing power remains strong. This enables the sector to apply price increases above inflation, reinforcing the aftermarket as a high-margin earnings engine.
Airbus Defence & Space – An Underappreciated Defence Asset?
Defence stocks have delivered exceptional performance in Europe this year. However, Airbus Defence & Space—Europe’s largest Defence contractor by revenue (around EUR 12 billion in 2024)—still receives limited market attention. This division represents an attractive option amid rising Defence spending in Europe. Airbus is involved in programmes such as Eurofighter, A400M, military helicopters, military satellites, and related intelligence systems. It also holds a 37.5% stake in MBDA, Europe’s leading missile manufacturer, currently facing record demand: EUR 4.9 billion in sales in 2024 and an order backlog of EUR 37 billion. Airbus has also highlighted its exposure to military drones, such as Flexrotor, which received its first order from Australian firm Drone Forge during the Show. Airbus is currently in talks with Thales and Leonardo to merge their space activities and create a consortium similar to MBDA, better equipped to compete with SpaceX. An update is expected in July.
Aerospace Sector Offers Long-Term Earnings Visibility
Few global equity sectors offer comparable long-term earnings visibility to civil aerospace. Airbus’ order book—approaching 9,000 aircraft—ensures production coverage for 8–9 years, backed by demand for fuel-efficient new aircraft and regulatory pressure to renew fleets. Similarly, engine suppliers like MTU benefit from long-term aftermarket service contracts that follow the aircraft delivery cycle and are further extended by increasingly complex maintenance activities. The civil aerospace sector also features very high entry barriers, linked to large capital requirements, regulatory certifications, and the need for highly specialised technologies and expertise. Our return expectations for Airbus and MTU are grounded in this extended visibility.
Conclusion: The Air Show Confirms Our Conviction in the European Aerospace Sector
The 2025 Paris Air Show reinforced our conviction to maintain exposure to the European aerospace sector. Improvements in the supply chain could unlock higher production rates for Airbus. The aftermarket continues to benefit from a favourable demand-supply backdrop, with positive signs across the value chain. Airbus’ Defence exposure, still underappreciated by the market, offers an additional promising angle, while long-term earnings visibilityfor both companies remains among the strongest across the European equity landscape.
