BREAKINGVIEWS-Engine groups’ heyday can survive planemaker redux

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.

By Oliver Taslic

LONDON, Jan 15 (Reuters Breakingviews) - Fans of early 2000s cinema may remember “Dude, Where’s My Car?” In recent years, airline executives have been asking a similar question about their planes. In 2026, commercial aircraft deliveries from $200 billion Airbus AIR.PA and $190 billion Boeing BA.N may finally exceed the 1,600-plus level reached back in 2018. But that doesn’t mean companies who have cashed in keeping older planes in the air longer should panic.

Airbus and Boeing are one of business’s great duopolies. Among commercial aircraft with more than 130 seats, the duo have accounted for over 99% of deliveries since 2000, according to Morningstar. Though pockets of competition exist, such as Brazil’s Embraer EMBJ3.SA in smaller jets and China’s Comac, the world’s major airlines rely on the pair to supply the ever more efficient jetliners they demand.

Recently, that hasn’t panned out. At Boeing, output was upended by two fatal crashes in 2018 and 2019 that led to a grounding of its popular 737 MAX. Then, in early 2024, a mid-air door plug blowout prompted regulators to impose a cap on production. Both Boeing and Airbus suffered from Covid-19 lockdowns, with total 2020 deliveries falling over 40% year-on-year, as well as from an industry-wide deficit of skilled workers and supply chain disruptions. In recent years, shortages of everything from engines to seats have contributed to gumming up delivery timelines.

The effects are stark. Airline trade association IATA calculated in December that if pre-2019 aircraft production trends had continued undisrupted, the industry would currently have over 5,000 more. The backlog of orders stood in late 2025 at over 17,000, equal to almost 60% of the world’s active fleet, compared to historical levels of around 30% to 40%, IATA said. Finally, airlines’ inability to retire precious aircraft amid strong travel demand has pushed the average fleet age to over 15 years, compared to less than 14 years between 1990 and 2024.

That’s not ideal for Airbus or Boeing. While they have other units like defence and space, civil workhorses like the MAX and Airbus’s A321neo remain cornerstones of their businesses. In 2024, Boeing’s commercial airplane division contributed 34% of the group’s $67 billion in revenue, while at Airbus the equivalent figure was almost three-quarters of the company’s 69 billion euro top line. Chalking up deliveries supports free cash flow, since the bulk of payment occurs when jets are handed over. Jefferies analysts have forecast Boeing’s free cash flow to rise to over $8 billion in 2028, from negative $2 billion in 2025, helped in large part by simply delivering more planes to customers.

Airlines have suffered, too. An October study by IATA and consultancy Oliver Wyman estimated that supply chain challenges could cost carriers more than $11 billion in 2025, including over $4 billion of added fuel costs from having to fly older, less efficient planes. Though there is some consolation in the form of compensation and reduced competition for airlines that can get jets in the air, it’s still a net negative. In early 2024, Ryanair RYA.I CEO Michael O’Leary commented that the carrier’s focus was “not getting compensation out of Boeing” but rather “getting the bloody aeroplanes out of them.”

One sector that has benefited is engines, whose intense heat and rotation speeds mean they require extensive upkeep as airlines delay retirement of aircraft. Many older CFM56 and V2500 engines have been chugging along longer than expected, boosting the need for spare parts and maintenance services from the likes of $340 billion GE Aerospace GE.N, $155 billion Safran SAF.PA and $25 billion MTU Aero Engines MTXGn.DE. IATA and Oliver Wyman have estimated that engines’ share of total maintenance, repair and overhaul (MRO) spend has increased to over 50%, from 48% in 2019. Like in other industries, the so-called aftermarket generally carries much higher margins than new deliveries.

Markets have noticed the shift. Over the past 18 months, shares in GE, Safran, MTU and long-haul engine specialist Rolls-Royce RR.L have far outperformed European and U.S. benchmark indexes. JPMorgan analysts wrote in December that a European civil aerospace index – including Airbus but also Safran, MTU and London-listed engine player Melrose Industries MRON.L – was trading around 22 times on a forward price-earnings basis, compared with an average of around 15 times since 2001.

As production ramps up, the question is whether that premium is justified, since every new aircraft delivered could offer an opportunity for an airline to retire an old one. Fortunately for engine companies, there are still a few tailwinds.

One is low oil prices. IATA in December forecast a 2026 jet fuel price of $88 a barrel, compared to a mean of $100 between 2022 and 2025. For airlines, that can improve their financial position and make older, fuel-guzzling engines less onerous. Despite the numerous headwinds facing carriers, from increased maintenance costs to rising air traffic control fees, IATA has projected a record $41 billion of net profit for the sector in 2026.

Moreover, the backlog is such that more deliveries may not necessarily mean that many more retirements. Earlier this month, Jefferies analysts used forecasts for air traffic growth and deliveries to calculate how many passenger aircraft the industry could retire in coming years. The brokerage reckons 2026 could see just under 600 retirements, or 2% of the starting fleet, below a long-term average of between 2.5% and 3.5%. They project the number of aircraft over six years old to go up this year, rather than down.

Finally, ramp-ups don’t always pan out. Airbus said on Monday it had delivered 793 commercial aircraft in 2025, having downgraded its previous full-year target of “around 820” in December after identifying an issue with certain fuselage panels. Boeing in October pushed the first delivery of its 777X programme to 2027 and took a near-$5 billion charge. Analyst forecasts compiled by Visible Alpha show expected Airbus deliveries for 2026 ticking gradually downwards in recent months, from over 920 in early December to 912 as of Tuesday. The maintenance profit engine could have further to spin.

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(Editing by George Hay; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on TASLIC/oliver.taslic@thomsonreuters.com))