How will Republican lawmakers reshape tax policy? Will the “Department of Government Efficiency” recommendations result in reductions of regulatory red tape, cost, and Federal Government Agency restructuring? Are Tariffs a solution that will drive manufacturing growth when the real problem is the high cost of U.S. Labor?[1] Would a Domestic Manufacturing corporate tax reduction spur improvement in domestic manufacturing and result in improved railcar freight volumes and commercial aircraft production? Can the Fed manage inflation after the inauguration? How important is domestic supply chain self-sufficiency in a world fraught with geopolitical risk?
The Tax Cuts and Jobs Act (“TCJA”) was passed during Trump’s first term in 2017. It is set to expire at the end of 2025. With Republicans in control of both chambers of Congress, a tax bill can be passed along party lines (similar to how Democrats passed the Inflation Reduction Act, e.g., using budget reconciliation, with a simple majority vote). In the most recent fiscal year (October 2023 to September 2024), the US federal government spent $6.75 trillion. The nonpartisan Congressional Budget Office estimated extending the TCJA in total would cost $4.6 trillion. Some Republicans are asking for a full extension, others ask tax policy be selectively balanced with the federal deficit in mind. Regardless, it’s unlikely significant new taxes will be imposed which is leading to an improved outlook for business activity.
Commercial air traffic has grown nearly twice the rate of domestic GDP over the last 50 years. Through October this year, Boeing and Airbus delivered 305 and 559 aircraft respectively compared to 405 and 559 respectively during the first ten months of 2023.[2] At the end of October, Airbus reported a backlog of 8,769 jets (89% A220 and A320 narrowbodies). Boeing’s backlog (total unfilled orders before their Accounting Standards Codification “ASC” 606 adjustment) was 6,246 aircraft, of which 77 percent were 737 family narrowbody jets. Both companies are receiving over two new firm orders for every aircraft delivered. Supply chain management and labor issues continue to impact new aircraft deliveries driving investment in existing mid-life, in-service aircraft.
The AAR’s “Freight Rail Index” which tracks the volume of rail traffic in the U.S. (both traditional carload commodities and intermodal containers) showed a 3.5% increase for October, year over year. [3] The U.S. Department of Transportation expects total freight demand to grow 27% by 2040.[4] Railcar lessors are experiencing improved lease pricing and secondary market activity. [5]
Commercial aircraft and freight railcars have demonstrated their ability to capture economic growth. Equipment portfolios deliver current cash, and ownership provides tax benefits and residual value appreciation. But it’s an investment firm’s talent, technology, and deep market networks that will drive profitable portfolio growth. Ready for 2025? For current investment opportunities in Aero and Rail assets, Call RESIDCO.
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[1] The average hourly wage in China is significantly lower than in the United States, with estimates placing the Chinese average around $5.50 per hour compared to the US average of roughly $28 per hour (meaning a US worker earns roughly five times more per hour than a Chinese worker on average).
[2] Due to the machinist’s strike Boeing delivered just 14 commercial jets in October.
[3] Association of American Railroads (“AAR”), Rail Industry Overview, November 7, 2024.
[4] Freight Rail’s Strategic Investments, August 2024.
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