On February 12, 2026, the U.S. Environmental Protection Agency (“EPA”) finalized the single largest deregulatory action in U.S. history, rescinding the 2009 Obama-era ‘Endangerment Finding’ and eliminating Federal greenhouse gas emission (‘GHG’) standards for motor vehicles and engines.[1] Using models utilized by previous administrations, the EPA determined that even if the U.S. were to eliminate all GHG emissions, there would be no material impact on climate change. The change clearly favors the use of fossil fuels (e.g., coal-fired power plants) and eliminates the need to incur high regulatory compliance costs. On February 20th, the Supreme Court ruled (6-3) that the Administration’s ‘Liberation Day’ tariffs were not allowed under the 1970 International Emergency Economic Powers Act.[2]
Aero OEM supply chain bottlenecks continue. Engine shortages caused by persistent Pratt & Whitney reliability issues continue to plague the PW1000G Geared Turbofan (GTF) used on Airbus A320 family airframes. At the end of 2025, about a third of the global A321 fleet was grounded. At the recent Singapore Air Show, Jeffrey Lam, COO of ST Engineering (the world’s largest airframe MRO service provider), said: “Lead times for components and material orders stretch over a year. Even trying to place early orders cannot address the problem, as the shortage is worldwide.” Gael Meheust, President & CEO of CFM International, added: “Supply chain issues are being compounded by incredible demand from airlines and lessors.” Airbus CEO Guillaume Faury at Airbus’ February 10th Q4 and full year earnings call: “We know Pratt is facing a number of challenges, but we are not happy. We’ll continue to work to enforce our contractual rights.” A single upgraded PW1000G engine is worth upwards of $22 million. As Spirit’s bankruptcy demonstrates, an airframe’s engines may be worth more than the airframe, and leasing the engines may bring in more than leasing the aircraft. Even older engines, when retired, are parted out for serviceable ‘green time’ material or repurposed to power data centers.
For the first six weeks of 2026, U.S. railroads reported cumulative carload volume of 1,297,249, a 3.4% gain over the same period last year. For the same period, combined traffic (including intermodal) was up .4% from 2025.[3] Railcar scrapping is outpacing new deliveries, resulting in overall fleet contraction. Fourth quarter railcar deliveries surprised with upside totaling 8,224 units; 2025 full year railcar deliveries were over 31,000 cars. As CEO Robert Lyons said during GATX’s February 19th earnings call: “Demand for existing railcars remains solid.”[4] UP and NS notified the Surface Transportation Board they will refile their merger application. Expect STB approval to require operating concessions and restrictions on the conduct of the combined business.
Core prices as measured by the Fed’s preferred Personal Consumption Expenditures Price Index (‘PCE”) remain above the Fed’s 2% target. The Bureau of Economic Analysis’ 2025 Q4 advance estimate of GDP growth was 1.4%, down from 4.4% in Q3. Speaking on February 11th, Kansas City Fed President Jeffrey Schmid reaffirmed his resistance to further interest rate cuts, arguing inflation would remain too high, saying: “The economy is entering 2026 on a strong footing.” With demand driving AERO OEM backlogs and continuing supply chain issues, lease rates for mid-life aircraft will remain above historic norms. Elevated engine values are driving further opportunities.
In an environment dominated by unexpected event risk, Aero and Rail economics remain strong. Investigate investment opportunities. Call RESIDCO.
Glenn Davis 312-635-3161
[1] State, Clean Air Act, and International mandates remain.
[3] Rail Traffic Uptick for Week 6, Railway Age, February 18, 2026.
The Surface Transportation Board ‘rejected’ the UP NS merger application (“without prejudice”), stating “Under the law, the Board… must reject the application, and does so without prejudice to Applicants refiling a revised application[1] that remedies the deficiencies identified.” The STB decision was based on the incompleteness of the application and not an indication of how the Board might assess any future revised application. What’s missing? “A full system impact analysis, market share projections[2], and a copy of the entire merger agreement[3], including the submission of any contract or other written instrument that pertains to the transaction.” The application is expected to be refiled.
With improved production discipline, Boeing delivered 600 commercial aircraft in 2025[4], a 72% year-over-year increase from 2024 and the best since 2018. At year’s end, Boeing’s backlog was 6,730[5] aircraft (11.4 years). Airbus delivered a total of 793 units to ninety-three customers last year[6]. At year’s end, Airbus’ backlog was 8,754 planes (11.1 years). OEM airframe order backlogs continue into the early 2030’s. With delivery delays, existing aircraft load factors are reaching record-high levels. The International Air Transport Association (IATA) projects annual load factors of 83.8% for 2026 (which would surpass the 2024 record). Delta’s decision to purchase 30 Boeing 787-10 aircraft, with options to buy an additional 30, signals a bullish long-term outlook (deliveries will not begin until 2031). Delta also entered into an agreement with GE Aerospace to service the GEnx engines selected for the aircraft.
Despite CFM International’s (a joint venture between GE Aerospace and Safran) delivery of 1,802 LEAP engines in 2025 (a 28% year-over-year increase from 2024), engine deliveries and new engine reliability issues have resulted in aircraft remaining grounded. The newer engine designs require more frequent removals and overhauls. Because the designs are new, the aftermarket supply chain has not caught up, resulting in extended shop times of 100-110 days, plus time waiting for a maintenance slot to open. Legacy CFM56 engines are known for their reliability, with average time on wing of 18,000 to 30,000 hours, and with heavy maintenance shop turnaround times shorter (around 70 days). When a spare is needed, engine inventory serves as an operational hedge. With the engine shortage, air carriers are forced to extend leases and keep existing equipment flying. The result? Existing legacy engines are in demand, and increasingly, air carriers do not want to return engines.
Measured by spending, the U.S. consumer market is the world’s largest. The Bureau of Economic Analysis updated its third-quarter estimate for 2025 U.S. GDP to 4.4%[7]. The Federal Reserve Bank of Atlanta estimates real GDP growth for the fourth quarter of 2025 at 5.4%. AI, consumer spending, stock market valuations, expanded tax deductions, regulatory relaxation, and lower interest rates are driving growth. Immigration restrictions are slowing job market growth as the U.S. added 584,000 jobs last year, about 49,000 a month[8].
In a hot economy, the Fed held interest rates steady at its January meeting. Aero and Rail investment requires deep asset knowledge, market access, and an ability to get the economics and residual valuations right. Opportunities exist. Call RESIDCO.
[1] UP and NS must respond by February 17 regarding whether they will refile their application. The revised application must be submitted no later than June 22, 2026.
[2] The application does not contain future market share projections showing the expected effects of merger growth, diversions, and other changes.
[3] Certain schedules and documents that supply the terms of define Applicants’ obligations that may impact the merger agreement/competitive issues.
[5] And, Boeing Shipped 600 jets in 2025, Wall Street Journal, January 14, 2026.
[6] Airbus Hits Plane Delivery Target, Wall Street Journal, January 13, 2026.
[8] WSJ, January 13, 2026, America’s Job Market Has Entered the Slow Lane.
With some dissent[1] the Fed cut the overnight lending rate to a range of 3.5% to 3.75% at its December meeting. It’s the sixth consecutive reduction since September 2024 (a total rate reduction of 1.75 percentage points). The Bureau of Labor Statistics reported that November CPI rose 2.7% year over year (after increasing 3% over the 12 months ending September). Unemployment rose to 4.6% in November, up from 4.4% in September (the Labor Department will release the December jobs report in January, before the next Fed meeting, January 27-28, 2026). The Fed also restarted quantitative easing (calling it a ‘technical adjustment’) at its December meeting ‘to manage market liquidity’. Lower rates, tax cuts, and QE2 will keep the economy stable, directly influencing the transportation merger trends we are seeing across the industry in 2026.
The UP and NS filed their comprehensive merger application with the STB (Docket No. FD 36873) on December 19. The nearly 7,000-page document can be accessed here[2]. Union Pacific CEO Jim Vena, “We look forward to working with the Surface Transportation Board as it reviews our historic application to create America’s first transcontinental railroad.” Norfolk Southern President and CEO Mark George, “This combination will bring together Union Pacific’s expansive Western reach and Norfolk Southern’s unparalleled access to Eastern manufacturing and population centers in an end-to end combination. It will create a cohesive freight rail solution with 50,000 route miles that connect 43 states and more than 100 ports.” The Board will decide by January 18, 2026, whether to accept the application for consideration or consider it incomplete. If accepted, the STB review process is expected to continue into early 2027. In another combination, the GATX and Brookfield Infrastructure transaction is expected to close in the first quarter of 2026. It will result in the largest railcar fleet in North America (242,000 railcars).
Boeing completed its acquisition of Spirit AeroSystems on December 8, 2025. Spirit was split: 15,000 personnel to Boeing, 4,0000 to Airbus. The $8.3 billion acquisition is intended to address quality issues and supply chain bottlenecks and to ramp up 737 Max production. Airbus confirmed it expects to deliver 790 units in 2025, short of its target of 820. Boeing is forecast to deliver 590 aircraft. The FAA has allowed Boeing to lift 737 MAX production to 42 per month. Boeing’s November deliveries: 32 737 MAX, the majority delivered were 737 MAX 8 and MAX 8-200 variants, with four MAX 9s completed. Boeing’s longer-term goal is to deliver 52 aircraft per month. 737 MAX 10 and 7 certifications are expected to happen in 2026. All projections assume suppliers can keep pace.
Retirement data suggest passenger jets are typically retired after 25 to 30 years of service, but economics determine flight lifespan. The value of mid-life commercial aircraft is dependent on traffic (network needs), aircraft type, equipment availability, and maintenance condition. The Boeing 737 and Airbus A320 family narrowbody aircraft are designed for service lives of 60,000 to 75,000 flight cycles (approximately 25 years). Service life can be extended through proper maintenance and refurbishment. Aftermarkets include smaller airlines, cargo operators, and charter services. At retirement, engines, avionics, and landing gear are valuable components that can be refurbished and resold (most of the value lies in the engines). Mid-life in service units are attractive alternatives as new deliveries continue to be delayed.
Airline and railroad transport are market bellwethers. In mid-December, the Dow Jones Transportation Average was up 10%. Third quarter GDP rose at a seasonally and inflation adjusted 4.3% annual rate[3]. To identify investment opportunities that unlock portfolio growth? Call RESIDCO.
[1] With three dissenting votes for the first time since 2014 and four nonvoting regional bank presidents opposed.
The Federal Government reopened on November 12th, 43 days after the October 1st shutdown. The Affordable Care Act insurance subsidies that prompted the Senate to block funding are set to expire at the end of this year. Without a bipartisan Congressional solution, a January 30, 2026, budget deadline remains. The November jobs report is scheduled for release on December 16, 2025. With the October job markets information not available for the December (9th -10th) Fed meeting, the Consumer Price Index up 3% year over year (September data), and the September’s jobs report (issued seven weeks late due to the Government shutdown) unexpectedly showing 119,000 jobs added, it is likely a data driven Fed will remain divided and hesitate to ease policy further. Until we know more, positive market sentiment continues to drive the 2026 aero and rail sectors.
Boeing is improving deliveries and production quality, but the A320 family has surpassed the 737 as the most delivered aircraft [1]. Boeing delivered 53 aircraft in October. Airbus reported 78 deliveries. Boeing’s October deliveries included thirty-nine 737 MAX, three 787-10, four 787-9, two 777F, two 767-300F, two 767-2C, and one 737-800A. Led by Kelly Ortberg, Boeing has exceeded its total deliveries for the entire year of 2024, indicating a strong recovery in production. GE Aerospace projects a year-over-year increase of over 20% in LEAP engine deliveries in 2025 compared to 2024 (reaching approximately 2,000 units). Deliveries will support aircraft production rates for both Airbus and Boeing (the A320neo is powered by the LEAP-1A, the 737 MAX is powered by the LEAP-1B). The CFM56, the most prevalent engine fleet in service (over 33,000 delivered), remains in strong demand, servicing the existing midlife fleet. Pratt & Whitney GTF-powered aircraft, primarily A320neo, A220s, and Embraer E-Jets E2s, remain grounded due to the need for prolonged inspections. Engine repair turnaround times are reaching 300 days, and recovery has been pushed back to the end of 2027 or early 2028.
Manufacturing accounts for about 11% of U.S. GDP and 8% of employment (the services sector accounts for roughly 77% of GDP and 85% of private-sector jobs). The manufacturing Purchasing Managers’ Index (PMI) remains below 50%. Even with manufacturing sluggish, railcarloads[2] remain nearly unchanged from 2024. Total carloads year to date through October were up 1.9%, more than 180,000 carloads over the same period in 2024. Through October 13, of the 20 carload categories the AAR tracks saw year-over-year gains. Year-to-date intermodal volume through October was 11.94 million units, up 2.8% (over 320,000 units) over last year, the most since 2021 and the third most ever. Carloads excluding coal were 1.0% higher in October 2025 than in October 2024, their seventh increase in the past eight months and the 19th increase in the past 21 months. Year-to-date carloads through October were up 1.3% (more than 93,000 carloads, a sign of positive market sentiment) and were the most since 2019.
Themes that will influence Aero and Rail equipment values and investment markets in 2026 include: tax cuts and deregulation, corporate earnings growth, inflation, interest rates, AI driven investment, technology gains, Aero OEM material shortages, supply chain disruptions, production bottlenecks, a lack of skilled labor, tariffs, nationalism, global competition, and MRO activity for aircraft[3] and engines will increase.
Solid demand and financial conditions support midlife aircraft. Freight rail remains steady. Market sentiment is positive. Benefit from strategic investment insight on the positive market sentiment that is driving 2026 aero and rail. Call RESIDCO.
Glenn Davis 312-635-3161
[1] Airbus chief executive Guillaume Faury remarked at the company’s third-quarter briefing that the A320, after 37 years, had “reached a major milestone, becoming the most-delivered airliner in history, surpassing the Boeing 737.”
2026 Investment Outlook – Market Support for Aero and Rail Continues
To stabilize jobs, the Fed cut interest rates an additional 25 basis points on Wednesday, October 29th, lowering the federal funds rate to 3.75% to 4%. The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% on a seasonally adjusted basis in September[1]. The Conference Board’s Consumer Confidence Index fell 1.0 point in October to 94.6 from September’s 95.6, reflecting consumer concern over inflation, financial conditions, and the job market. Trade uncertainties remain for manufacturers, and future rate cuts are uncertain[2]. With the government shutdown, the Surface Transportation Board suspended operations. The Federal Railroad Administration has furloughed 23% of its staff. Shortages of federal air traffic controllers and Transportation Security Administration (TSA) agents are delaying flights. Despite all of this, the 2026 investment outlook indicates strong market support for aero and rail.
Yet the Board of Governors of the Federal Reserve’s October 2025 Beige Book reports economic activity has changed little. GATX Rail North America reported rail fleet utilization (excluding boxcars) at 98.9% at the end of the third quarter of 2025. Third-quarter renewal lease rates rose 22.8%, with average renewal terms of 60 months. GATX’s aircraft Engine Leasing portfolio reported segment profits of $60.4 million for the third quarter compared with $37.5 million in the prior year period. CEO Robert C. Lyons: “Robust global passenger air travel continues to drive strong demand for aircraft spare engines.”
Brett Hart, President, United Airlines: “This summer was the busiest in United’s history.” United surpassed 1 billion available seat miles in a single day and flew over 48 million customers in the third quarter. In 2026, United expects to hire over 2,000 pilots and over 3,200 new flight attendants. United had the company’s all-time highest business revenue ticketing during the week ending October 5. Of the top five best weeks in United’s history, three of the remaining four occurred in September 2025. United is forecasting fourth-quarter operating revenue to be the highest in the company’s history. The International Air Transport Association (IATA) reports air cargo demand grew 2.9% year over year in September, the seventh consecutive month of overall growth. Willie Walsh, IATA’s Director General: “We are seeing air cargo patterns adapt as trade patterns shift due to US tariff policies.”
Total U.S. rail carload traffic averaged 226,670 cars per week in the third quarter of 2025, the most for any quarter since the second quarter of 2021. Growth in grain and motor vehicles & parts more than offset declines in metallic ores and food products. Excluding coal, U.S. carloads were up 1.8%, their ninth year-over-year gain in the previous 10 quarters. Third quarter’s intermodal volume rose 0.6% over the same period in 2024, the 8th consecutive quarter of year-over-year intermodal growth. Year-to-date through September, U.S. intermodal volume was up 3.5% over last year. There is a close correlation between domestic U.S. rail volume and manufacturing output. Concerns remain, as U.S. manufacturing capacity utilization has trended downward over the past three years. The AAR’s Freight Rail Index (“FRI”), which measures seasonally adjusted rail volumes (excluding carloads of coal and grain), fell 0.8% from August to September 2025, reflecting demand uncertainties.
With the government shutdown, key economic indicators are limited. The Congressional Budget Office projects the U.S. economy will lose between $7 billion and $14 billion if the shutdown continues through the end of November. Questions remain about employment (AI spending is the most significant single driver). Trade tensions with China will remain even after the U.S. dropped 10% tariffs in return for progress on soybean imports, rare-earth exports, and fentanyl issues. The bottom line? Strong market support for aero and rail continues. Call RESIDCO.
Glenn Davis 312-635-3161
Through the first 29 weeks of this year (ended July 20), the Association of American Railroads reported North American rail volume up 2.3%. United Airlines CEO Scott Kirby reports passenger demand is picking up: “The world is less uncertain today than it was during the first six months of 2025 and that gives us confidence.”[1] Delta also predicted a stronger second half after reporting a $2.4 billion profit for the first half of 2025 (United reported $1.4 billion).
Aero OEMs continue to face supply chain component disruptions, leading to shortages in engines, airframe structures, cabin systems, and skilled labor. In June, Boeing and Airbus delivered more aircraft than in the previous month: Airbus delivered 63, up from 51 in May. Boeing delivered 60, exceeding the 45 delivered in May (Boeing finally reached its FAA-approved production rate of 38 737 MAX aircraft in May). Boeing’s current backlog equates to approximately 11.6 years of output, Airbus’s 10.7 years. Airbus remains in a stronger position in terms of production and deliveries, but continues to struggle to meet delivery targets. Airbus recently added an A320neo final assembly plant in Mobile, Alabama, which is expected to be operational sometime in the third quarter of this year. As of June 30, Airbus has delivered 306 commercial aircraft, and Boeing, 280. Delayed new equipment deliveries continue to force air carriers to keep their fleets in service longer. Nearly 90 to 95% of expiring aircraft leases are being renewed, up from a 30% to 40% renewal rate just a few years ago.[2] In an April meeting with President Trump, Larry Culp, CEO of GE Aerospace, advocated: “We support promoting free and fair trade, including the duty-free environment that has long fueled the US aerospace sector, leading to more than 1.8 million US jobs and a $75 billion annual trade surplus.” In May, the US-UK trade agreement followed, eliminating tariffs on the aerospace sector. It’s a strong framework for future trade agreements. Then on July 27th, after negotiations in Scotland, the U.S. and EU announced a preliminary 15% baseline tariff on most goods and a zero tariff agreement on aircraft and parts.
Lessor-owned railcar fleets are operating at utilization levels in the high nineties. With attrition exceeding new builds, the national fleet is shrinking. Railcars in storage are at the low end of their most recent range, approximately 295,000, below 19% of the total fleet. Expected new railcar deliveries for the year start at 35,000 units. Lower industry new builds and active scraping have increased the average railcar fleet age to 20.3 years. Lease rate renewals remain strong.[3] The new tax bill’s bonus depreciation will lower the after-tax cost of new equipment. Still, it’s the direction of interest rates, and the impact of steel and component pricing that will influence near-term railcar demand. A transcontinental railroad? The merger announced between the Union Pacific and Norfolk Southern is expected to improve rail service by reducing interchange delays. It will face Surface Transportation Board review and a public comment period. If approved, it is expected to close in early 2027.
The U.S. economy grew at a seasonally and inflation-adjusted 3.0% annual rate in the second quarter. Prices (excluding food and energy) rose an annualized 2.5%. Weak manufacturing and housing investment are expected to slow the 2nd half. Interest rate reductions remain a possibility if progress towards the Fed’s 2% inflation target is made, and the labor market weakens. With the tax bill behind us, clarity on tariffs emerging, deregulation ahead, and bonus depreciation (100% for property acquired after January 19, 2025), secondary market Aero and Rail activity will increase. The investment outlook is improving. It’s time to adapt. Make the most of current Aero and Rail opportunities. Call RESIDCO.
Glenn Davis 312-635-3161
[1] The Wall Street Journal, July 17, 2025.
[2] GE Aerospace, CFO Rahul Ghai, July 17, 2025, Earnings Call.
We face a multipolar geopolitical environment: Iran/Israel, Russia/Ukraine. China/Taiwan. North Korea/South Korea, each seeking to demonstrate regional dominance. The Administration’s response has been to prioritize U.S. interests. Tariffs, the “Big Beautiful Bill,” deportations, deregulation, the Department of Government Efficiency, airstrikes on Iran’s nuclear facilities, and a subsequent cease-fire. All this activity has occurred since January. It’s been quite a dramatic six months. Business owners, investors, economists, and consumers are hesitating to make decisions. Even the Fed is holding.
The uncertainties surrounding the extent of the Administration’s policies are creating a drag on the economy. Yet North American rail freight volumes remain stable. May carload traffic rose 5.9% compared to a year ago. Year-to-date carloads through May were up 2.5%[1]. In May, 13 out of 20 carload commodity categories notched annual gains, suggesting freight demand is broadly improving. Overall, rail traffic continues to outpace 2024 levels. The AAR Freight Rail Index, which excludes coal and grain, fell 3.2% in May from April, reflecting softness in intermodal (intermodal volume grew .6% in May, the weakest in nearly two years). Data center demand and current hot weather are driving coal demand (NS and CSX are expected to order new replacement coal cars). Used rail equipment pricing and lease rates continue to be supported by current high new car pricing. GATX’s combination with Wells Fargo is a strong signal supporting the long-term economics of investment in rail rolling stock.
At the June 17/18 FOMC meeting, the Fed held its benchmark interest rate steady in a range of 4.25%-4.5%. It’s been there since January. Rates were cut 100 basis points in 2024 (the last cut was 0.25% in December). The Fed raised its projection for inflation and unemployment while lowering expected economic growth. Fed Chairman Powell, in his testimony before the House Financial Services Committee on Tuesday, June 24, stated recent economic data would have justified a rate cut, but the Fed is holding, waiting for additional data regarding the impact of tariffs on inflation. Projections now are for two 25 basis point reductions later this year. Consumer spending has slowed, and home builders are reporting that the uncertainty over tariffs is driving rising costs and making it difficult to price new home construction. Housing mortgage rates remain between 6.8% and 7%. Oil prices have dropped back to levels seen before the conflict between Iran and Israel as the ceasefire appears to be holding.
For Aero OEMs, demand for new aircraft remains high. Supply tensions are easing. Engine issues continue to delay deliveries. Airbus left the Paris Air Show with $21 billion in orders. Airbus’s orders included both A350 and A220 models (Polish Airlines LOT ordered up to 84 A220s, 40 firm with options for an additional 44 aircraft). Boeing kept a low profile, choosing to focus on the Air India Flight 171 787 Dreamliner crash, which occurred the Thursday before the Air Show’s Saturday start. The 787 had flown for over a decade without a single fatal crash. Known for fuel efficiency and long-range capability, they are a favorite for long-haul international routes. Over 1,100 Dreamliners are currently in global service.
In today’s uncertain environment, rail equipment markets are stable. Demand for commercial aircraft remains strong. Both asset classes provide long-term investment opportunities. Deregulation and an expected pro-growth tax policy favor an improving investment environment. According to Boeing, the answer is to “Focus on supporting your customers.[2]” For insights into current opportunities, Call RESIDCO.
Glenn Davis 312-635-3161
[1] Association of America Railroads, Policy & Economics, Rail Industry Overview, June 2025.
[2] At the Paris Air Show 2025, “Boing to Focus on Customers, Innovation and Partnership.”
In a global market, equipment (including aero and rail) investment successes come not only from corporate strategy and execution but also from a nation’s competitive advantage. A country’s national leaders are responsible for crafting and executing strategies that maintain global economic dominance. On the worldwide stage, free markets will allocate capital efficiently, but have not resulted in mutual and equal prosperity. Trade benefits those with the best “competitive” advantages. In The Art of War, military strategist Sun Tzu wrote that the best strategy is one where you win without firing a shot.
We should not expect China to embrace Western democracy or fully open its markets, as doing so would destabilize its Communist Party leadership. Xi Jinping’s strategy has been to absorb U.S. technology, strip businesses from other countries, and replace foreign corporations with domestic ones. Self-interest[1] has driven China’s leaders to target large-scale industrialization and develop and control their domestic markets by using regulations and subsidies that advantage Chinese firms. Examples include the development of the ARJ21 (aka the C909, a 78-90 seat regional jet) and the C919, China’s first domestically[2] produced narrow-body aircraft, which is meant to replace the Boeing 737 and Airbus A320. COMAC intends to produce 200 C919 jets annually by 2029 to challenge the Boeing-Airbus duopoly. Beijing’s Communist Party has directed its national airlines to withhold new orders, not accept any more Boeing aircraft deliveries, and pause purchases of aircraft-related components and equipment from the U.S. Xiamen Airlines recently returned two Boeing 737-8 aircraft, unable to pay a 125% retaliatory tariff on U.S. goods imported into China.
With limited access to Chinese domestic markets, the value of foreign investment will vaporize. While the administration announced a 90-day suspension of additional tariffs beyond the baseline 10% tariff applicable to most countries (except China), fluctuating tariff policies have created challenges as businesses navigate a constantly changing landscape. United Airlines, during its April 15, 2025, Investor Update, stated “bookings have been stable” but then offered two separate possible macroeconomic expectations. “Either the U.S. economy will remain weaker but stable, or the U.S. may enter a recession,” and “If demand drops, new routes and bigger planes will be put on hold.”
U.S. retail sales were up 1.4% in March, the most significant monthly gain since January 2023. The uptick was largely attributed to consumers making big-ticket purchases ahead of expected tariffs. Motor vehicles and parts increased by 5.3%, with additional increases in electronics, sporting goods, clothing, groceries, and online retail. For the first 15 weeks of this year, U.S. railroads reported a cumulative volume of 3,219,891 carloads, up .9% from the same period last year, and 4,088,865 intermodal units, up 8.5% from last year. Although market uncertainty and trade policy changes increase the range of possible outcomes, CSX expects rail volume growth for 2025[3]. Tariffs, CSX said, will likely lead to more North American business. “East Coast ports can expect benefits from decoupling from China.” CSX is already seeing increased output from U.S. steel mills with positive trends in construction activity, chemicals, plastics, and agriculture, all a plus for rail volumes.
The Federal Government borrowed $1.3 trillion more than it took in the first six months of this fiscal year (a gap 23% wider than in the same period a year earlier). A weaker dollar and Treasury market volatility[4] has made hard asset Aero and Rail investment more attractive. Call RESIDCO.
Glenn Davis 312-635-3161
[3] For CSX, a difficult first quarter. CEO Joe Hinrichs, CSX, Railway Age, April 17, 2025.
[4] Markets Defy Dollar’s Haven Status as Risk Assets Plunge, Wall Street Journal, April 18, 2025.
A government shutdown averted, a stopgap spending bill signed (ensuring government operations through the end of September), government agency reductions in force, a 25% tariff on steel and aluminum imports from all countries and on imported goods from Mexico and Canada, all in the first quarter of 2025. Trade and reciprocal tariff uncertainties are causing volatility in the market and consumer confidence. The Administration’s long-term strategic goal (the “bigger picture”) is to attempt to ensure America’s competitive preeminence in the face of China’s global mercantilism by diverting production of goods to domestic factories, reducing deficit spending, and providing incentives to invest in America. The near-term impact, however, will be supply chain disruption, inflation, lost government jobs, reductions in entitlement spending, and the possibility of a lost ‘soft landing.’ Investment planning is becoming more challenging.
The choppy start of the first quarter has made air carriers’ capacity cautious. Delta, American, and Jet Blue have cut their first quarter guidance. United expects first-quarter earnings to come in at the ‘lower end’ of its forecast due to a 50% drop in government-related travel bookings. Scott Kirby announced early this month that United plans to retire 21 of its ‘most expensive’ aircraft early in 2025 and cut capacity to Canadian destinations. United’s mainline fleet comprises 1,010 aircraft, of which the oldest, on average, are the B767-300ERs (37, averaging 29.1 years), followed by the B757-200s (40, 28.2 years), the B777-200s (19, 28.1 years), and the B737-700s (40, 26 years). Kirby did not disclose which aircraft will be ‘retired.’[1] Delta’s Ed Bastian commented on March 10: “We’re noticing the biggest pullback in demand right now in terms of bookings, and what they are saying about the macro environment and the uncertainty that’s out there right now. We know in a broad sense what the President wants to do, but we’re a long way from seeing things put in place.”
In Rail, the administration is looking for ways to revive coal plants that have closed and prevent others from shutting down. According to the Institute for Energy Economics and Financial Analysis, the U.S. had been on track to close half of its coal-fired generation capacity by 2026. But Doug Burgum, the new Secretary of the Interior, and other officials have said keeping plants online can help lower energy costs for U.S. consumers. The administration wants to cut through red tape and empower the nation to compete in an AI arms race against China. AI data centers require immense amounts of energy which need stable base load sources. The Interior Department approved a federal mining plan modification by the Office of Surface Mining Reclamation and Enforcement for the Spring Creek mine in Big Horn County, Montana, operated by Navajo Transitional Energy. The agency said the decision extends the mine’s operational life by 16 years and lays the path for the production of about 40 million tons of ‘federal’ coal.[2] In 2024, coal units in Maryland, Indiana, Wisconsin, and Utah extended their retirement dates to 2036 or 2038 as generators aim to meet rising demand. CONSOL Energy CEO James Brock said, “If demand grows at even half the pace everyone is expecting, I think you’ll see these coal-fired plants run at least at a higher capacity, and they may even extend their retirements further.”
Focus on the bigger picture. Risk-adjusted hard asset cash flows with residual upside. Profit from the economics of uncertainty and grow your aero and rail investment. Call RESIDCO.
Glenn Davis 312-635-3161
[1] CH-Aviation, First quarter softness may be a buying opportunity, March 21, 2025.
[2] DOI, Interior Advances Energy Independence with Spring Creek Mine Expansion Approval, March 13, 2025.
Boeing delivered 45 jets in January[1]. That’s 19 more than Airbus’ January deliveries. COMAC and Embraer each delivered three aircraft in January 2025. Airbus plans to deliver 820 commercial aircraft in 2025, 7% more than in 2024 (Boeing delivered 348 in 2024). Boeing’s 737 deliveries remain capped at 38 aircraft per month. The newly appointed Secretary of Transportation, Sean Duffy, has said he will keep the production cap in place until he is satisfied with Boeing’s safety standards. Safran[2] CEO Olivier Andries has made public statements expressing confidence that Boeing will hit a delivery rate of 38 per month in the first half of 2025 and 42 a month by the end of the year. The 45 aircraft Boeing delivered in January were the most in a month since December 2023. January was the company’s first full month of production since the seven-week machinists’ strike last fall. CFM International, the sole provider of the LEAP engines used on the 737 MAX is expecting to increase its LEAP production by 15 to 20% this year. That would allow Boeing to ramp up its 737 MAX production. Both OEMs face supply chain challenges involving issues with engines and aerostructures manufacturer Spirit AeroSystems. Spirit AeroSystems produces fuselage sections for Boeing’s 737 and 787 aircraft as well as flight deck sections. Spirit also supplies Airbus with fuselage sections and front wing spars for the A350 and wings for the A220.
Southwest is planning to sell some of its older 737NG aircraft and replace them with the newer 737 MAX8. The air carrier plans to retire 51 aircraft to operate an all-MAX fleet by 2031. It’s additionally weighing whether to sell 10-737-800 aircraft. “These are midlife aircraft that currently have highly favorable market valuations.”[3] As new equipment deliveries continue to be delayed older aircraft are retained in service longer. Air carriers are facing lessor lease extensions of six years for older aircraft and eight to ten years for new aircraft. Engine durability challenges related to Pratt & Whitney’s geared turbofan (‘GTF’) and CFM’s LEAP engines continue to impact operators. IATA’s chief economist Marie Owens Thomsen has said the wave of recent lease extensions has resulted in airlines operating the oldest fleet in modern history.
In North America, 26% of U.S. Freight ton-miles are moved by rail. Trinity Industries Fourth Quarter 2024 Investor Presentation reported continued strength in lease rates with their ‘future lease rate differential’[4] +24.3% and fleet utilization at 97%. Trinity feels the North American Railcar Market is ‘in balance’ and is forecasting approximately 35,000 new railcars to be delivered in 2025 (not including conversions). Trinity is a leading railcar manufacturer with 41% of industry deliveries in FY 2024. Their portfolio includes 270 different railcar designs serving approximately 900 different commodity groups, 52% Freight Cars and 48% Tank cars.The Conference Board’s January 28th report reveals consumer confidence is falling and expected inflation rising. For now, the Fed is holding interest rates steady. Deregulation, deficit reduction, and extending the 2017 tax cuts will help. Fleet investment provides stable cash flow, tax advantages, and hard asset inflation benefits. Release opportunities provide a natural interest rate hedge. Air traffic and rail freight support the economy. But the U.S. Economic Policy Uncertainty Index is higher now than at any time since the Great Recession. Are we at a peak in the value cycle? To answer that question and successfully grow aero and rail investments, Call RESIDCO.
Glenn Davis 312-635-3161
[1] Boeing ended January with 5,554 aircraft in its backlog, 4,296 737s, 109 767, 427 777s and 722 787s.
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