February 21, 2020

Our aerospace lead Ray Rezab recently attended the Pacific Northwest Aerospace Association’s annual conference in Lynnwood, Washington.  As one of the largest aerospace conferences in the United States and located in Boeing’s backyard, the PNAA conference is a 3 day event that highlights the current state of the aerospace industry, provides current market updates from Boeing and Airbus, and gives Zachary Scott a chance to visit with our aerospace friends and to make new ones.

The overriding theme of the conference, not surprisingly, was the status of the 737 MAX program.  The timeframe for restarting production appeared to be narrowing to mid-2020, there were still a number of outstanding questions and concerns that could push that date further out.  In addition, the general consensus was that production would take a significant amount of time to ramp back up to the rate that existed prior to the shutdown.  While Tier 1 suppliers, such as Spirit AeroSystems in Wichita, Kansas are being impacted by the shutdown, the greater impact has been on the Tier 2 and Tier 3 suppliers.  And the future ramp up in production of the 737 MAX will put cash flow pressures on suppliers who have not planned how to accommodate the expected rapid increase in demand.  Boeing is not the only manufacturer suffering delays – previous delays in engine deliveries and newer production/supply issues on Airbus’ new 321 NEO model has delayed production of that high demand aircraft.

While both the 737 MAX and 321 NEO issues are seen as temporary, the long-term outlook for global aircraft demand through 2040 continued to remain impressively strong, as over one-half of the existing commercial fleet will be replaced, combined with continued growth in overall airplane travel.

Not surprisingly, M&A activity, driven primarily by large publicly-traded companies and private-equity backed firms, has slowed somewhat but that comes on the heels of one of the largest consolidation periods for the industry.  As both Boeing and Airbus get their largest selling models back up to full production, we expect M&A to continue to rebound.