The aviation supply chain is experiencing a period of robust demand and high valuations, even as airlines themselves face growing challenges. Aircraft manufacturers and maintenance providers have benefited from ongoing backlogs and elevated service requirements, a dynamic that has supported strong orders and healthy margins for suppliers despite softness among carriers.

Manufacturers Boeing and Airbus continue to work through a delivery backlog that dates back to the pandemic, resulting in sustained demand for parts and maintenance services. Older aircraft still in operation require more upkeep than newer models, further bolstering the business for suppliers. According to a recent McKinsey survey, around two-thirds of maintenance providers and parts suppliers reported stable or increased demand over the past six months.

This optimism is reflected in market valuations. Parts supplier Heico has seen its market capitalization double over the past four years to exceed $40 billion, with a current price-to-earnings ratio based on projected earnings two years ahead standing at approximately 48, down from a peak near 58 the previous year. General Electric’s aviation segment maintains a valuation close to a decade high, trading near 40 times expected earnings in 2028. Similarly, Safran, a major French aerospace firm, is reportedly benefiting from favorable market conditions, while Rolls-Royce projects a significant rise in profit margins—expecting civil aircraft maintenance contracts to be 28 percentage points more profitable by 2028 than in 2022.

By contrast, airlines are facing headwinds, with more than half of those surveyed by McKinsey noting weakening demand. The International Air Transport Association (IATA) recently revised down its global passenger growth forecast for 2026 to 2.1 percent, a sharp reduction influenced largely by geopolitical uncertainty surrounding tensions between the United States and Iran. Profitability is also expected to be constrained, with the industry’s net profit margin projected at just 2 percent.

In response, some airlines have been scaling back capacity to balance profitability, particularly as the summer travel season concludes. British Airways owner International Airlines Group (IAG) has emphasized a focus on margins rather than market share. Likewise, Lufthansa has retired several aircraft, including two jumbo jets and the last of a certain model, signaling a shift toward more cost-effective operations.

While reduced flying hours or grounded planes can somewhat mitigate expenses for airlines, this strategy does not significantly impact the aircraft supply chain in the short term. However, sustained difficulties for airlines could eventually dampen demand for parts and maintenance services, underscoring the interconnected nature of the aviation ecosystem. For suppliers, the health of their industry ultimately depends on the ability of carriers to navigate the current turbulence successfully.