Core Viewpoint - BNP Paribas Exane initiates coverage on 12 U.S. aerospace and defense companies, suggesting selective investment due to pressures in commercial aviation and anticipated growth in defense spending by 2026 [1] Commercial Aviation - The firm prefers parts and subsystem suppliers over large OEMs, favoring companies like Raytheon (RTX.US), TransDigm (TDG.US), and AeroVironment (AVAV.US) with positive ratings, while giving a negative outlook on Boeing (BA.US) and GE Aerospace (GE.US) [1][3][4][5] Defense Sector - Exane expects U.S. budget decisions in 2026 to drive demand, listing Lockheed Martin (LMT.US), Northrop Grumman (NOC.US), and AeroVironment (AVAV.US) as preferred picks [1] Company Ratings - **AeroVironment (AVAV.US)**: Outperform, positioned at the core of U.S. defense priorities with expected double-digit growth in its AxS segment [1] - **TransDigm (TDG.US)**: Outperform, with anticipated profit margin improvements in 2026 and 2027, and a projected special dividend of $100 next year [2][3] - **Raytheon (RTX.US)**: Outperform, expecting improved output from Collins Aerospace and growth in Pratt & Whitney [4] - **GE Aerospace (GE.US)**: Underperform, with concerns over declining aftermarket revenue and increasing losses in the GE9X project [5] - **L3Harris Technologies (LHX.US)**: Neutral, with limited room for valuation expansion despite benefits from missile defense projects [6] - **Boeing (BA.US)**: Underperform, with overly optimistic expectations on aircraft production and cash flow [7] - **Lockheed Martin (LMT.US)**: Outperform, driven by missile projects and international demand [8] - **Kratos Defense (KTOS.US)**: Neutral, with high valuation concerns despite broad defense technology coverage [9] - **General Dynamics (GD.US)**: Outperform, with expected improvements in various sectors including Gulfstream jets and shipbuilding [10] - **Northrop Grumman (NOC.US)**: Outperform, with anticipated growth in multiple projects as they transition to procurement phases [11] - **Howmet Aerospace (HWM.US)**: Outperform, with strong performance in pricing and market share [12] - **Heico (HEI.US)**: Neutral, with cautious outlook due to high valuation and potential slowdown in acquisitions [13]

Core Insights - Safran reported strong performance in Q3 2025 with adjusted sales reaching EUR 7.9 billion, driven by high teens growth in volume and services [2] - The civil aftermarket showed robust demand, with spare parts for civil engines increasing by 16% and services growing by 24% [2] - LEAP engine deliveries reached a record of over 500 units in Q3, marking a 40% year-on-year increase and a 25% rise from the previous quarter [3] - A total of 1,240 LEAP engines were delivered in the first nine months of the year, reflecting a 21% increase compared to the previous year [3]

Financial Data and Key Metrics Changes - Sales increased by 13% organically year over year, with adjusted segment operating profit up 19% and free cash flow at $4 billion for the quarter [3][4][14] - Adjusted earnings per share (EPS) rose 17% to $1.70, driven by segment operating profit growth [14][16] Business Line Data and Key Metrics Changes - Commercial aftermarket sales grew 18%, while commercial OE and defense sales both increased by 10% [13][14] - Collins sales were $7.6 billion, up 8% adjusted and 11% organically, with commercial OE sales up 16% and defense sales up 6% [20][21] - Pratt and Whitney sales reached $8.4 billion, up 16% on both adjusted and organic bases, with commercial aftermarket sales up 23% [22][24] - Raytheon sales were $7 billion, up 10% on both adjusted and organic bases, driven by higher volume in Land and Air Defense Systems [25][26] Market Data and Key Metrics Changes - Global demand for products and services remains strong, with commercial aerospace passenger air travel expected to grow by approximately 5% this year [4][5] - The book-to-bill ratio was 1.63, resulting in a backlog of $251 billion, up 13% year over year [5][28] Company Strategy and Development Direction - The company is focused on executing commitments and driving performance improvements through its core operating system, achieving 10% organic sales growth while keeping headcount flat [8][10] - Investments of over $600 million in capacity expansion projects are underway to support growth [10][12] - The company is innovating for future growth, including developing hybrid electric propulsion systems and next-generation braking systems [11][12] Management's Comments on Operating Environment and Future Outlook - Management raised the full-year outlook for adjusted sales to a range of $86.5 billion to $87 billion, reflecting strong operational performance and end-market strength [16][18] - Free cash flow outlook remains at $7 billion to $7.5 billion for the year, with expectations for continued top-line growth and margin expansion [18][28] Other Important Information - The company completed the sale of the actuation business and the Collins Simmons Precision Products business for $765 million [15] - The company is experiencing a headwind from tariffs, impacting margins across segments [89] Q&A Session Summary Question: Confidence in delivering LEAP engines to Airbus - Management expressed confidence in supporting production ramps for Airbus and balancing material allocation to meet delivery targets [34][40] Question: Limitations to Raytheon segment growth - Management noted strong demand but emphasized the need for a healthy supply chain to meet production increases [44][50] Question: Margins in Collins and tariff impacts - Tariffs were identified as a key driver affecting margins, with ongoing efforts to mitigate these impacts [88][90] Question: Expectations for GTF compensation payments - The financial outlook for GTF compensation payments remains consistent, with planned payments for the fourth quarter [83][84] Question: Incremental margins and future growth in Raytheon - Management highlighted the potential for margin expansion driven by a favorable backlog mix and increased production efficiency [120][122]

Core Insights - GE Aerospace is set to release its third-quarter 2025 results on October 21, with revenue expectations of $10.34 billion, reflecting a 15.6% increase year-over-year, and earnings per share estimated at $1.46, indicating a 27% growth from the previous year [1][9] Financial Performance - The company has consistently exceeded earnings expectations in the past four quarters, with an average earnings surprise of 16.1%. In the last quarter, earnings of $1.66 per share surpassed the consensus estimate of $1.43 by 16.1% [2] Revenue Drivers - The anticipated strong performance in the third quarter is attributed to GE's robust installed base and increased utilization of engine platforms in both commercial and defense markets. The Commercial Engines & Services segment is expected to generate revenues of $8.25 billion, marking a 17.8% year-over-year growth [3] - The Defense & Propulsion Technologies segment is projected to achieve revenues of $2.52 billion, reflecting a 12.5% increase year-over-year, driven by strong demand for propulsion technologies and aftermarket services amid heightened defense budgets and geopolitical tensions [4] Operational Investments - GE Aerospace has been investing in expanding and upgrading manufacturing facilities, which is expected to enhance operational capacity and meet rising demand from commercial and defense sectors. This focus on operational execution and maintaining a robust backlog is likely to support performance [5] Challenges - The company faces high costs and operating expenses in certain projects, which may impact overall performance. Additionally, supply chain challenges, including raw material availability and labor shortages, particularly in aerospace and defense markets, could affect timely product delivery [6] Earnings Outlook - The earnings model indicates a potential earnings beat for GE, supported by a positive Earnings ESP of +2.01%, with the most accurate estimate at $1.49 per share, higher than the consensus estimate of $1.46. GE currently holds a Zacks Rank of 3 [7][8]

Core Viewpoint - The article discusses the escalating trade tensions between the U.S. and China, particularly focusing on President Trump's threats regarding export controls on Boeing aircraft parts in response to China's new rare earth regulations. This situation highlights the deteriorating relationship and the potential long-term impacts on both countries' aviation industries. Group 1: U.S.-China Trade Relations - President Trump has threatened to impose export controls on Boeing aircraft parts as a reaction to China's recent rare earth export regulations [1] - The trade dispute has led to a significant decline in Boeing's orders from China, dropping from 25% to less than 5% of total orders [1] - The situation is characterized as Trump having "no good cards to play" against China, leading to reckless decisions that could harm Boeing's reputation [1] Group 2: Impact on Boeing and the Aviation Industry - Boeing has faced challenges in the Chinese market, with Chinese airlines having ordered at least 222 Boeing aircraft, while currently operating 1,855 [4] - The potential export controls could also impact CFM International, a major manufacturer of commercial aircraft engines used in Boeing's 737 MAX [4] - The article notes that Airbus holds 185 orders from Chinese customers and has a production base in Tianjin, producing about four A320 aircraft monthly [4] Group 3: Domestic Aviation Developments in China - China is actively promoting its domestic commercial aircraft industry, with the C919 aircraft competing against Boeing's 737 and Airbus's A320 [4] - Chinese airlines have ordered 365 domestic aircraft, indicating a shift towards local production [4] - The article mentions that while Trump's threats may not directly affect domestic aircraft manufacturing, they could disrupt the maintenance and operation of existing Boeing fleets in China [6]

Core Viewpoint - The U.S. may impose export controls on Boeing aircraft parts in response to China's rare earth export restrictions, which could significantly impact Chinese airlines and related U.S. suppliers [1][2]. Group 1: U.S.-China Trade Relations - Trump's administration has utilized Boeing as a strategic tool in trade negotiations, emphasizing the importance of aircraft as high-value trade items [2][3]. - The U.S. and China have historically been significant trade partners, with China projected to be the third-largest goods trading partner for the U.S. in 2024 [2]. Group 2: Boeing's Strategic Importance - Boeing's aircraft, particularly the 737 model, have been a major part of China's aviation market, with approximately 1,855 active Boeing aircraft and at least 222 on order [1]. - The long delivery cycles of aircraft orders allow countries to announce purchases without immediate financial burdens, aligning with Trump's negotiation strategies [2][3]. Group 3: Impact on Suppliers - U.S. suppliers, such as General Electric Aviation, may face challenges if export controls are enacted, particularly concerning engines used in Boeing's 737 MAX and other aircraft [1].

Investment Rating - The report maintains a "Buy" rating for the company [2] Core Insights - The report addresses key issues such as global aviation demand changes from Boeing and Airbus orders and delivery capabilities, analysis of major engine models and components, and the growth drivers for the company's compressor blades and rotating components [9] - Global passenger turnover is recovering, with a record high seat occupancy rate, and nearly 80% of the current commercial aircraft will be replaced in the next 20 years [9] - Boeing and Airbus orders have significantly increased, with the company’s precision forging blade business expected to accelerate growth due to faster engine deliveries [9] - The company is entering the overseas rotating component business to create a second growth curve amid tight overseas supply chains [9] - The company possesses core technologies in precision forging blades and structural component machining, making it one of the few specialized enterprises capable of mass production of compressor blades for leading international engine manufacturers [9] Summary by Sections Market Data - Current price: 25.43 CNY - 52-week price range: 12.90-28.10 CNY - Total market capitalization: 6,570.67 million CNY - Average daily trading volume: 109.42 million CNY [6] Performance Metrics - The company’s stock has outperformed the CSI 300 index over 1 month (0.0%), 3 months (20.2%), and 12 months (95.7%) [7] - Revenue and net profit projections for 2025, 2026, and 2027 are 904 million CNY, 1,234 million CNY, and 1,682 million CNY respectively, with corresponding net profits of 157 million CNY, 232 million CNY, and 345 million CNY [10] Revenue Breakdown - The company’s revenue from aviation products is projected to contribute 92% of total revenue in 2024, with a steady increase in gross margin [36][44] - The aviation product revenue for 2024 is expected to be 646 million CNY, with a gross margin of 38.1% [11] Financial Performance - The company has shown a compound annual growth rate (CAGR) of 27.80% in revenue and 44.35% in net profit from 2018 to 2024 [35] - The weighted return on equity (ROE) for 2024 is projected to be 11.64%, indicating a recovery in profitability [55] Strategic Initiatives - The company has implemented a stock incentive plan to motivate talent, with performance targets set for net profit from 2024 to 2026 [60]

Core Insights - The successful delivery of the first repaired engine by Zhuhai Mo Tian Yu Jin Wan Factory to China Southern Airlines marks a significant milestone in the MRO (Maintenance, Repair, Overhaul) capabilities of the airline [1][4] - The Jin Wan Factory, a joint venture between China Southern Airlines and German MTU Aero Engines, officially commenced operations in March 2023 and aims to enhance service quality and efficiency in engine maintenance [1][2] Group 1 - The Jin Wan Factory is expected to deliver over 50 engines this year, with an annual maintenance capacity projected to reach 260 engines after full production [2][5] - The factory's operational efficiency and advanced production management systems are designed to support the MRO network for GTF engines, indicating a commitment to high-quality service [2][5] - The combined maintenance capacity of the Zhuhai Mo Tian Yu facilities is anticipated to exceed 700 engines annually, positioning it as a potential leader in the global MRO market [5]

Core Insights - The successful delivery of the first PW1100G-JM engine by Zhuhai Motianyu Jinwan Factory to China Southern Airlines marks a significant milestone in the engine MRO (Maintenance, Repair, and Overhaul) sector for the airline [1][5] - The Jinwan Factory, which began operations in March 2023, is a joint venture between China Southern Airlines and MTU Aero Engines, aimed at enhancing MRO capabilities [1][5] Company Developments - The Jinwan Factory is expected to deliver over 50 engines in 2023, with a projected annual maintenance capacity of 260 engines once fully operational [5] - Combined with its other facility, Zhuhai Motianyu aims to achieve an annual maintenance capacity exceeding 700 engines, positioning itself as a potential leader in the global MRO market [5][6] Industry Context - MTU Aero Engines, a key partner in this venture, reported a revenue of €7.5 billion for the fiscal year 2024 and maintains a significant presence in the global aviation market, servicing one-third of the commercial fleet [6] - The factory's strategic location near major cities like Hong Kong, Guangzhou, Shenzhen, and Macau enhances its operational advantages in the Asian aviation market [6]

Core Viewpoint - The report from Zhongtai Securities indicates that the decline in supply growth presents an opportunity for improvement in the aviation industry, with expectations of a performance turning point for airlines due to favorable supply-demand dynamics, stable ticket prices, and high passenger load factors [1] Supply Side Analysis - The introduction of new aircraft is expected to slow down due to factors such as a slow recovery of the supply chain, retirement of old aircraft, insufficient new orders, and uncertainties in China-US relations. The projected supply growth rates (ASK) for the industry from 2025 to 2027 are 6.32%, 4.56%, and 2.26% respectively [1] - Boeing and Airbus are facing delivery delays, with 2024 deliveries expected to be 766 and 348 aircraft respectively, which do not return to pre-pandemic levels. The delivery progress for the first four months of 2025 is also lagging behind annual plans [1][2] - The shortage of engines is significantly constraining deliveries, with only 1,407 LEAP engines expected to be delivered in 2024, supporting only 700 new narrow-body aircraft, which is well below the pre-pandemic demand [1] Domestic Aircraft Production - The C909 aircraft is steadily increasing its production capacity, with a projected delivery of 35 units in 2024, while the C919 is expected to take longer to ramp up, with only 16 units delivered by the end of 2024 [2] - There are 195 total orders for the C909 and 330 confirmed orders for the C919, with significant deliveries planned from 2024 to 2031 [2] Inventory Perspective - The supply chain crisis persists, and the retirement of aircraft is expected to accelerate, with projected retirements of 134, 143, and 152 aircraft from 2025 to 2027 [4] - The utilization of wide-body aircraft remains low, with a significant shift in capacity allocation towards domestic routes, which may impact overall efficiency [3] Engine Issues - The PW1100 engine is facing significant operational disruptions due to contamination risks, leading to large-scale recalls and repairs, while the LEAP engine is experiencing durability issues that require upgrades [4] - The impact of these engine issues is expected to be more pronounced for the PW1100, with a notable increase in grounded aircraft compared to previous years [4]