Strong GDP growth, sticky inflation, and a soft landing–core themes for aero and rail investment. The economy’s performance in 2025 will drive the Fed’s future interest rate decisions. Higher ticket revenues and lower energy prices (jet fuel is expected to be less expensive in 2025) will benefit air carriers. The International Air Transport Association estimates the average cost of jet fuel during the year will be about $87/bbl, or $2.0714/gal, well under 2024’s lows. IATA also expects the cumulative cost of jet fuel in 2025 to be $248 billion, nearly 5% below 2024. Boeing delivered 17 737MAX last December and is not expected to turn cash-flow positive until it can ramp up 737 production to 38 per month. GE Aerospace’s commercial engines service segment reported 19% growth in fourth-quarter revenue. Engine availability is an issue. Pratt & Whitney’s Geared Turbofans (‘GTF’) continue to ground aircraft, resulting in operational disruptions, particularly affecting the Airbus A320neo fleet. Rail volumes are up and boosted by intermodal shipments. Coal carloads continue to decline. Grain carloads were 1.07 million up 8.5% (83,906) over 2023 (at 8.4 million carloads they were the most since 2019). For farmers, the Commodity Futures Trading Commission reports long positions in corn are their highest since May 2022. Efforts to reduce the burden of Federal Government regulations will reduce costs and free businesses to invest. Even though the Fed has reduced short-term interest rates by 1% in 2024, long-term interest rates are up, reflecting the market’s concern surrounding tariffs, tax, and Federal budget deficit uncertainties.
In 2024 rail carloads excluding coal rose 1.4%, or 117,264 carloads, over 2023 (their third year-over-year gain in the past four years[1]). The 2.94 million carloads of coal that originated in 2024 were the fewest in AAR records that go back to 1988 (coal carload volumes peaked in 2008 at 7.44 million). The drive to restore manufacturing will increase rail activity. GATX reported railcar demand ‘steady’ with railcar leases extended at attractive rates, high fleet utilization, and strong renewal success[2]. Excluding their boxcar fleet, GATX’s fourth quarter U.S. railcar fleet renewal lease rates were up 26.7% with average renewal terms of 60 months and a renewal success rate of 89.1%. Union Pacific’s fourth quarter included carload growth, improvements in velocity, employee productivity, operating income, and operating ratio.
There are about 17,000 single-aisle passenger aircraft in service globally. Approximately 11,600[3] ‘prior generation’ single-aisle aircraft are currently in service (6,055 A320ceo and 5,562 737NG). Single-aisle aircraft supply remains tight and new aircraft production remains low. At 2024 delivery rates, the aerospace industry will need almost 14 years to clear current outstanding orders.[4] As a result, markets are supporting mid-life aircraft values, lease rates, and longer lease terms.[5]
2024 performed much better than many economists thought. A core theme for 2025? The U.S. economy will continue to grow faster than other advanced economies. At 4% unemployment remains low. Expected tax relief and deregulation will drive investment in 2025. With a focus on business, not bureaucracy, the outlook for opportunities in Aero and Rail assets is up. Work with those who know where current Aero and Rail investment opportunities exist. Call RESIDCO.
Glenn Davis 312-635-3161
[1] Rail Time Indicators, Association of American Railroads, January 15, 2025.
[2] Railway Age, January 23, 2025, Fourth-quarter and full year 2024 financial report.
[3] Ibid. 694 PW1000G powered aircraft are currently parked.
