With a continued recovery in global air travel, aerospace stocks will see more gains in the coming years. Several tailwinds support the bullish thesis for these stocks.

First, air travel demand continues to gain momentum across the globe. U.S. July 4th travel shattered records and Europe’s passenger traffic exceeded pre-pandemic levels in the first half. Meanwhile, other markets like China are still below their pre-pandemic highs, leaving ample growth runway.

Secondly, the aerospace industry is finally resolving its supply chain issues related to labor and part shortages. Therefore, going forward, airplane manufacturers and part suppliers will be able to meet their growing order backlog.

Thirdly, the emergence of a growing middle class in Asia markets such as India means aircraft demand will grow. For example, Air India is expanding and has ordered 470 planes as of June 2023. These tailwinds will be a boost for these three aerospace stocks.

Boeing (BA)

Over the past five years, Boeing (NYSE:BA) has been plagued by scandals, accidents and a tainted safety record. As a result, it has come under increased pressure, with Congress calling for disciplinary action. After the latest Alaska Air (NYSE:ALK) fiasco, the Federal Aviation Administration halted production expansion to address these safety issues.

Still, taking a longer-term view, Boeing is one of the best aerospace stocks to buy. Its industry’s structure, a duopoly with Airbus (OTCMKTS:EADSY), means airlines have only these two options for their wide-body aircraft needs. Indeed, it’s no coincidence that Boeing’s backlog stood at $437 billion and included over 5,400 airplanes as of the end of Q2 2024.

If Boeing addresses its tainted safety record, it could quickly return to revenue growth and free cash flow generation. That’s why the board appointed a new CEO, former Rockwell Collins boss Kelly Ortberg. As an industry veteran with a mechanical engineering background, he is the right fit to spearhead a turnaround.

His first task will be negotiating a labor deal to avoid a strike this year. At the same time, he must rebuild relationships with airlines and regulators and restore a safety culture. If he resolves the safety and quality concerns, Boeing can ramp up its 737 production and grow free cash flow.

GE Aerospace (GE)

After the spinoff of GE Vernova (NYSE:GEV), GE Aerospace (NYSE:GE) has become a pure-play aircraft engine market leader. It dominates the jet engine market with a 55% market share. The stock is already up over 57% year-to-date as the market appreciates its strong competitive position.

Indeed, GE Aerospace is an exceptional business and the leading commercial propulsion engine manufacturer. Moreover, it’s the provider of choice for rotorcraft and combat engines. As of June 30, it had an installed base of 70,000 commercial and defense engines. This installed base drives recurring after-market services revenue that accounts for over 70% of total revenue.

Q2 2024 results highlighted the robust demand the jet engine maker is experiencing as it saw double-digit growth in orders, operating profit, and free cash flow. While total GAAP revenue of $9.1 billion only represented 4% YOY growth, the company showed impressive operating leverage. Operating profit was $1.9 billion, increasing 37% YOY as operating profit margins expanded by 560 basis points to 23.1%.

Even better, total orders increased by 18% to $11.2 billion. This growth highlights the historic demand the engine maker is experiencing. Recent commitments with Turkish Airlines for wide-body engines, Japan Airlines for GEnx engines and National Airlines for GE90 engines are just a few examples.

TransDigm (TDG)

TransDigm (NYSE:TDG) is a uniquely advantaged business since 90% of revenues come from proprietary after-market part product sales to the aircraft industry. These products require regulatory approval, creating significant barriers to entry that allow TransDigm to earn significantly higher margins.

Another key strength of this business is its operating model. First, it runs a decentralized organization with a compensation structure aligned with shareholders. Secondly, it pursues accretive acquisitions focusing on companies that will provide private equity-like returns. That’s why TDG stock has been up 154x since its IPO in 2006, delivering a 32% internal rate of return compared to the S&P 500’s 9-10%.

TransDigm continues to see solid demand across all end markets, making it one of the top aerospace stocks to buy. In Q2 results released on May 7, net sales grew 21% YOY to $1.9 billion. What’s more, management raised fiscal 2024 guidance. They expect sales between $7.68 to $7.8 billion, about 17.5% growth at the midpoint and adjusted EPS between $31.75 to $33.09, an increase of 25.5% at the midpoint.

With EBITDA-defined margins of 53.2%, this is one of the most profitable stocks in the industry. Plus, it continues its accretive deals, acquiring SEI Industries and Raptor Scientific in May to bolster its portfolio.

On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.