Middle East tensions and rising oil prices have led to a pullback in aerospace aftermarket activity, but underlying demand remains intact, according to a new report from Morgan Stanley.
The bank noted that aftermarket-related stocks, which include StandardAero, Heico and TransDigm group, have fallen by around 15% in recent weeks, compared with a 4% fall in the broader stock market.
This reflects concerns that higher fuel costs could squeeze airline margins and lead to deferred maintenance. However, the bank believes that the weakness is likely to be temporary, seeing it more as a timing issue rather than a structural decline in demand.
Aircraft typically stay in service for around 25 years, and with high utilisation rates and new aircraft deliveries constrained, airlines continue to rely heavily on existing fleets. This is reinforcing demand for maintenance, repair and overhaul (MRO) services, even if some work is delayed in the near term.
Supply chain challenges are also having an impact. Limited availability of new aircraft is extending fleet lifecycles, while durability issues with some newer engine platforms are adding to maintenance requirements.
Morgan Stanley said the trajectory of oil prices will be a key factor in the short term. A brief spike is expected to have only a limited impact on maintenance schedules, while a more prolonged rise could influence airline capacity and fleet decisions over time.
Despite near-term volatility, the bank said the aftermarket sector continues to benefit from strong structural drivers, with any deferred maintenance likely to support activity later in the cycle.