A combination of surging population levels and rising disposable incomes in emerging regions looks certain to drive demand for civil passenger aircraft skywards in the coming years.
This belief was given further credence late last week when blue-ribbon engine builder Rolls-Royce (LSE: RR) announced it had inked a record $9.2 billion contract with Middle Eastern airline Emirates. The deal will see the British engineer supply the carrier with Trent 900 engines for 50 of its Airbus A380 planes, as well as TotalCare aftermarket services for the airline’s fleet.
And this is not the only significant deal the Crewe-based business has signed off in recent weeks. In late March Rolls-Royce signed a deal with Air China to build Trent 1000 engines for 15 new Boeing 787-9 Dreamliner aeroplanes, as well as to provide its TotalCare package on a long-term basis. It also agreed to supply Trent 700 engines for four Airbus A330 freighter aircraft, in addition to TotalCare services, to Turkish Airlines for $300m.
Component sales set to surge
And news of surging orders from carriers across the globe will also come as music to the ears for the likes of Cobham (LSE: COB) and GKN (LSE: GKN).
The latter is a top-tier supplier of aerostructures, engine parts and sub-systems to the world’s biggest planebuilders, and currently generates around 22% of total revenues from the commercial aviation sector. Indeed, GKN’s importance to the aerospace industry was illustrated by the $200m deal it signed with Rolls-Royce back in January to supply hardware for the firm’s Trent 1000 engines.
Meanwhile Cobham — which sources around four-tenths of total sales from the civil market — is also reaping the rewards of growing aircraft demand, and saw like-for-like sales rise 5% in 2014. Accordingly the business is ramping up its exposure to this segment and purchased US-based Aeroflex last year for around $1.5bn.
Traveller numbers on the rise
Last week’s bubbly order activity at Rolls-Royce should also be greeted with enthusiasm by airline operators such as easyJet (LSE: EZJ) and International Consolidated Airlines (LSE: IAG) — the galloping investment being made by their rivals further illustrates the waves of confidence oscillating across the industry.
Luton-based easyJet saw the number of passengers aboard its flights leap 7.5% in March. And International Consolidated Airlines — which is looking to add Aer Lingus to its stable of airlines — saw traffic measured in revenue passenger kilometres rise 7.4% last month.
With traveller demand rising across the globe, I believe that aircraft manufacturers and airlines alike are in rude shape to enjoy resplendent sales growth over the long term.