What does 2025 hold for Civil Aerospace?

What does 2025 hold for civil aerospace? Will we continue to see slip-ups, or an improved picture of an industry fit to deliver the future of flying?

2024 saw the industry confront various challenges – from supply chain issues, parts, materials, and labour shortages, and high operating costs. Against a backdrop of increasing demand for aircraft, and a backlog of ~16,000 aircraft, all eyes will be on our industry in 2025. Balaji Srimoolanathan, Director for Aerospace, Space and the Aerospace Growth Partnership at ADS explores…

Will delivery performance improve?

Supply chain issues, strikes, and rate caps, all added to a sub-optimal delivery performance in 2024, with Airbus delivering ~766 aircraft and Boeing delivering ~340 aircraft.

With strikes resolved, supply chain issues being addressed and improved revenue and cash flow visibility, it is anticipated that deliveries of new commercial aircraft will increase by more than 30% in 2025 compared to 2024.

However, supply-chain constraints, which have restricted production rates for the past two years, will continue to be a factor but are widely expected to improve by the end of 2025, and free cash flow is expected to improve for most aerospace companies, reducing leverage levels.

Global air-passenger traffic has rebounded from pandemic lows and is expected to grow nearly 12 percent this year, according to BRG. Defence spending continues to increase amid regional conflicts and pressure on NATO countries to hit 2 percent GDP spending targets. The artificial intelligence (AI) boom, meanwhile, is ready for lift-off as A&D executives strive to improve supply chain visibility, drive cost efficiencies, create revenue growth opportunities, and more.

However, some deep rooted and persistent challenges remain. Several years of fragile margins and high operating costs, parts shortages, and inflationary pressures have made margins and profitability an ongoing challenge. Several supply chain businesses are still expected to face access to finance issues, making “capital”, one of the most coveted commodities, and capital allocation a sophisticated exercise.

Workforce shortages and regulatory hurdles, along with potential policy changes following the US elections could lead to a heightened competitive landscape.

Capital Allocation – A complex play?

Amongst these ongoing opportunities and challenges, where will executives invest their cash? Will the focus be on allocating capital to address the challenges associated with the rate ramp up or will cash be allocated to long-term pursuits such as Net-Zero and the opportunities and challenges it brings?

Whilst, a level of re-balancing and rerouting cash towards rate growth and efficiency gains in the short term, from relatively long-term pursuits like net-zero is expected (potentially moving long-term R&D pursuits to the right), the industry is expected to remain stead-fast in its sustainability commitments, with a focus on Sustainable Aviation Fuels and technology innovation.

A buoyant or muted M&A landscape?

Deal activity in the sector has been muted over the past two years due to high interest rates, uncertainty over policy changes, and mounting regulatory scrutiny. Activity has been driven mostly by the middle-market, with acquirers focused on addressing strategic technology, capability, and talent gaps and sell-side deals largely from undercapitalized owner-managed businesses and the need to realign capabilities with evolving market priorities.

2025 is likely to be characterised by a larger number of buyers competing for limited assets at elevated valuations with a focus on segments like MRO and machined parts manufacturing.

Will technology adoption come to the aid?

With a focus on improving delivery performance, optimising capacity, and reducing waste and overheads, heightened focus on operationalizing innovative technologies like AI and automation is expected to drive advancements in operating practices; increase productivity and cost effectiveness; improve supply chain visibility, quality, and reliability; and access new revenue growth opportunities.

In 2025, we are likely to see more companies employing digital technologies to track the flow of materials, better manage inventory levels, and help oversee supplier compliance. From talent to supply chain opportunities, aerospace companies are likely to integrate digital technologies and artificial intelligence to address some of the industry’s persistent problems.

Advanced Air Mobility – unlocked or locked-up?

The advent of advanced air mobility (AAM) is set to revolutionise the transportation of passengers and goods, and one that is set to be rewarding to both investors and to society if realised. However, the journey to realising the full potential of AAM has been fraught with challenges in the past two years. With financing, regulatory, and infrastructure hurdles to overcome, will the sector thrive and advance in 2025?

In 2025, despite the many challenges, AAM OEMs are likely to continue along the path to mature their activity towards flight operations and certification. Beyond airworthiness, 2025 is expected to see many industry leaders working to achieve general acceptance from both passengers and the community at large and developing infrastructure systems to get off the ground.

Progress can only be achieved through a unified regulatory framework to accommodate these new technologies while ensuring safety and security. The current regulatory environment is often fragmented, with different countries and regions adopting varying standards, slowing down the deployment of AAM solutions and operations.

Additionally, infrastructure development, such as vertiports and charging stations, requires significant investment and coordination among stakeholders. Public acceptance and trust in these new modes of transportation are also crucial for widespread adoption, necessitating robust safety records and transparent communication from AAM companies.

2025 will see a continued need for collaboration between all stakeholders from government and private sectors, further innovations and technological advances, and a harmonised global approach that ensures safety.

Trump, tariffs, and trade wars?

We might be speculating, but based on his comments and actions in his previous terms, what should we potentially brace for under the new Trump administration?

• Intense policy focus on tariffs – A blanket policy approach on tariffs could cover aviation and aerospace supply chains – risking aerospace manufacturing businesses that rely on export and import goods across borders, potentially also driving up costs of assembly equipment and materials that are imported by the US / exported to the US. A significant portion of components for Boeing and Airbus jets (and their engines) assembled in the US come from abroad – including the UK!
• Will sustainability related subsidies to industry be at risk? This could include the tax credit for users of sustainable aviation fuel (SAF) was already signed into law by the Biden administration. Trump and his allies are less supportive of green subsidies, potentially putting the SAF tax credit – which could help accelerate the use of more sustainable fuels – in danger.
• What could a Trump administration mean for Paris Agreement and Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA): Trump previously withdrew the US from the UN’s Paris Agreement in his first term, and it would seem likely he does so again. The most direct impact could be the US also withdrawing from CORSIA, administered by ICAO, a Specialised Agency of the UN, which started the voluntary first phase in 2024. All major US airlines re-affirmed their support for CORSIA previously, and there would be a lot of obstacles for the US to ditch this. A key concern might be that the EU’s stop-the-clock decision on the ETS expansion is coming up, so a withdrawal from CORSIA could paradoxically increase net carbon costs for airlines if the ETS is then expanded by the EU to fill the gap.

Overall, 2025 is a year to be optimistic about the future of civil aerospace. Pent-up demand, improving supply chain performance, lowering interest rates, and technology adoption, all promise a better year than the years before. However, progress hinges significantly on the need for global policy coordination and certainty, continued investment on efficiency and sustainability, and delivery focus to ensure that the industry succeeds in 2025.