Newly confirmed Federal Reserve Chairman Kevin Warsh inherits an inflation rate that has been persistently above the Fed’s 2% target. People who have worked with him say he is unlikely to force outcomes the open market committee won’t support. Warsh feels the path to restoring Fed credibility runs through better methods for measuring and forecasting inflation, a smaller Fed balance sheet, and a quieter central bank. With Federal debt held by the public now over 100% of GDP, the Federal Open Market Committee next meets June 16-17th. Conditions have boxed in rate-cutting; markets expect the Fed to hold rates steady, and there’s a competitive advantage to be captured in the aero and rail sectors.
Despite disruptions in the Middle East, demand for passenger air travel continues to grow. United expects to serve 53 million travelers this summer, 3 million more than last year. Boeing’s 737 MAX delivery rate has improved but remains below historical output (Airbus faces its own A320neo production problems). Air carriers needing aircraft this year cannot simply order new ones. Delivery backlogs for new narrowbodies extend six to eight years. The industry will remain constrained on the supply side until the early 2030’s. Delta reported first-quarter record revenue of $14.2 billion (up 9.4% compared to the same period last year, generated $1.2 billion in free cash flow, and had a 12% return on invested capital).[1] Berkshire Hathaway’s Greg Abel added $2.6 billion in Delta equity during the first Quarter. Spirit Airlines is releasing 130-plus aircraft. Southwest is evaluating 737-800 dispositions. Frontier is under financial stress. These situations produce motivated sellers with available assets. Even with higher jet fuel pricing, mid-life aircraft and engines (which institutional investors regard as too old, too maintenance-intensive, or too complex) remain operationally indispensable. Bridge lease rates for 737-800s and A320ceos have softened, but with persistent bottlenecks for new-generation aircraft, air carriers still need these units to cover capacity gaps. Demand for spare aircraft engines remains strong. Material and parts shortages are keeping engines off-wing, waiting for components, forcing air carriers to lease spares to keep fleets in service.
Total rail carloads posted a fourth straight year-over-year gain and reached their strongest April level since 2019. The AAR Freight Rail Index (which excludes coal and grain to better capture underlying freight momentum) rose to its highest level in 16 months, reinforcing signs of improving rail freight momentum. GATX reports lease renewal rates running 22% above expiring rates, fleet utilization 98%.[2] New railcar orders are expected to remain below the 35,000–42,000 annual replacement threshold.
Both midlife Aero and Rail opportunities carry residual value risk. A twenty-year-old covered hopper can still move grain. A twenty-year-old narrow body faces technological and obsolescence challenges. Engine economics are dependent on equipment specifics, service, and maintenance status. Railcars are more straightforward (there is no D-check or an engine overhaul visit). Rail equipment demand is driven by commodity flows and manufacturing activity levels. Aero equipment demand is driven by passenger and airfreight demand, equipment availability, and comparative capital and operating costs. Setting aero residuals requires the ability to assess remaining useful life at the component level, not just the airframe level. Valuing engines requires understanding material content and maintenance history: how many cycles remain on life-limited parts, and what is the timeline until the next shop visit?
U.S. economic data remains solid.[3] Secondary market liquidity for both Aero and Rail is deep. Rail freight has momentum. Aviation demand is running well ahead of supply. Both provide the foundation to capture competitive advantage. To discuss opportunities, call RESIDCO.
Glenn Davis 312-635-3161
[1] April 8, 2026, Delta Air Lines financial results for the March Quarter.
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