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
U.S. payroll growth slowed, adding only 22,000 jobs in August, the lowest since December 2020. Unemployment was 4.3% in August, still low, but the highest since October 2021, nearly four years ago. Initial jobless claims edged slightly higher. Recognizing that the labor market drives consumer spending (accounting for 70% of the U.S. economy), the Fed, on September 17th, moved to lower interest rates by a Quarter Point to a range of 4% to 4.25% and projected two additional rate cuts for the remainder of this year. This sets the stage for growth: activities in the Aero and Rail investment markets are likely to rise as consumer spending and business investment are driven by expected additional rate cuts and cash tax savings from bonus depreciation generated from the July 4th tax legislation.
Less regulation will foster economic growth (the EPA has moved to repeal a 2009 declaration stating that greenhouse gases[1] pose a public threat, saying the finding was “unduly pessimistic”). Foreign manufacturing companies are responding to the Administration’s drive to revive U.S. manufacturing, creating jobs and implementing new technologies. Hitachi Rail opened a new carbon-neutral railcar manufacturing facility in Hagerstown, Maryland, on September 8th (the factory uses AI and other digital technologies for enhanced production). It’s part of Hitachi’s $1 billion investment in U.S. manufacturing. South Korea based JS Link plans to establish a rare earth permanent magnet manufacturing facility in Columbus, Georgia, to accelerate production capability for rare earth permanent magnets in the U.S. U.K. based GKN Aerospace is expanding its facility in Newington, Connecticut by adding a production line focused on Fan Case Mounting Rings (FMCR) which connect Pratt & Whitney’s GTF engine to the aircraft’s pylon on the A220. A new bill has been introduced in the U.S. Senate: “Halting International Relocation of Employment” (the HIRE Act) which seeks to discourage American companies from outsourcing jobs overseas and includes a 25% tax on payments made to foreign firms for services used by American customers, a ban on deducting those expenses from taxable income, and the creation of a Domestic Workforce Fund to support training and apprenticeships in the U.S. The combination of new manufacturing projects and supportive legislation significantly bolsters the outlook for aero and rail investment.
For the first 38 weeks of 2025, U.S. railroads reported a cumulative volume of 8,423,372 carloads, up 2.2% from the same point last year, and 10,289,962 intermodal units, up 3.6% from last year. Total combined U.S. traffic for the first 38 weeks of 2025 was 18,713,334 carloads and intermodal units, representing a 3.0% increase compared to the same period last year. Delta’s fall revenues are expected to be stronger based on booking trends and commentary from executives. At the Morgan Stanley Laguna Conference[2] Glen Hauenstein, President of Delta Air Lines, Inc., remarked: “We’re seeing very strong domestic corporate demand into the fall. We had our highest post-pandemic corporate sales number of any day in any week this September. Bookings for both corporate and high-yield leisure are doing incredibly well. October has become a peak month for transatlantic travel. Domestic capacity rationalization has occurred, and demand trends are improving.” These strong performance metrics confirm the growing opportunity in aero and rail investment.
The Rail Customer Coalition (“RCC”), initially formed in 2015 as Consumers United for Rail Equity (“CURE”), a group of freight rail shipper associations (manufacturers, agricultural producers, and energy companies), are asking for a thorough review of the proposed UP/NS merger and advocating the STB impose conditions that ensure “actions to enhance competition, service, and supply chain stability.
Second quarter GDP growth was revised up to 3.8%. Value appreciation of aircraft (and engines) is accelerating. Policy and tax uncertainty are clear. Investment momentum is improving. To hit your Fourth Quarter targets and capitalize on the current momentum in aero and rail investment, benefit from deep industry experience. Call RESIDCO.
Glenn Davis 312-635-3161
[1] Less emphasis on carbon emissions will allow air carriers to continue to operate of existing midlife equipment.
Evidence, arguments, and testimony presented by the Union Pacific and Norfolk Southern and interested parties (Rail Shippers, Labor, Competitors, Federal, State, and Local government agencies, and the Public) will influence how each Surface Transportation Board (“STB” or the “Board”) Member chooses to interpret the Board’s earlier June 11, 2001 “Major Rail Consolidation Procedures” Final Ruling[1]. The Ruling at §1180.1 (a) states, “To meet the needs of the public and the national defense, the Board seeks to ensure balanced and sustainable competition in the railroad industry. The Board welcomes private-sector initiatives that enhance “capabilities and competitiveness” and goes on to state, “the Board does not favor consolidations that reduce the transportation alternatives available to shippers unless there are substantial and demonstrable public benefits to the transaction that cannot otherwise be achieved. Such public benefits include improved service, enhanced competition, and greater economic efficiency.
Applicants shall make a good-faith effort to calculate the net public benefits their proposed rail consolidation merger would generate and explain how the transaction and conditions they propose would enhance competition. The Board will then carefully evaluate such evidence, arguments, and testimony (of all interested parties) and any conditions the applicants suggest that would not simply preserve but also enhance competition in ways that strengthen and sustain the rail network as a whole. The Board is required to provide a fair arrangement for the protection of the rail employees of applicants who are affected by a consolidation. Mergers should strengthen, not undermine, the ability of the rail network to advance the nation’s economic growth and competitiveness, both domestically and internationally. Applicants must discuss and assess the national defense implications of their proposed merger, as rail mergers must not compromise the United States military’s ability to rely on rail transportation to meet the nation’s defense needs.
The Administration’s “America First” policies emphasize domestic economic growth and the removal of burdensome and ideologically motivated regulations. The STB is a federal agency with exclusive jurisdiction over rail mergers (49 U.S.C. §11321). As a multi-member body with varying political preferences, Board members will be influenced by the current Administration’s politics as they weigh arguments, testimony, and evidence presented before making a final decision (note on August 27th, President Trump fired Robert Primus, a Democratic board member, the only member of the board to oppose the CPKC merger). Federal law (49 U.S.C. §11324) holds the STB “shall approve and authorize a transaction when […] it finds the transaction is consistent with the public interest”. Determining what is and is not in the public interest is therefore central to the STB’s review of proposed mergers and acquisitions. The U.S. Court of Appeals for the Seventh Circuit emphasized that the Board must act within its statutory authority when, on July 8, 2025, it vacated the Board’s Reciprocal Switching Final Ruling, finding that the STB had overstepped its statutory authority and remanding the Ruling for further proceedings[2].
Board Members will have to weigh the arguments and testimony of interested parties and then evaluate whether the rail consolidation transaction would serve the ‘public’ interest and enhance competition. Market participants are already arguing in their self-interest. CSX is being pressured[3] and the CPKC (which already has a single line 20,000-mile transcontinental railroad is arguing against[4]. Expect more debate to come.
A major rail consolidation? Don’t wait. Make the most of current Rail opportunities. Call RESIDCO.
Glenn Davis 312-635-3161
[3] Hedge fund Ancora Pressures Railroad CSX, Wall Street Journal, August 20, 2025.
[4] Keith Creel, President CPKC: ‘Further Consolidation ‘Not Necessary,’ Railway Age, August 26, 2025.
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.”
On April 2, the President signed an Executive Order imposing new tariffs on imports of all articles into the U.S. customs territory subject to certain exceptions. Then, on May 28, the U.S. Court of International Trade ruled imposition of tariffs exceeded the President’s “emergency” powers[1]. The Commerce Department is also pursuing an investigation under the Trade Expansion Act of 1962 to address the impact of imports of commercial aircraft, engines, and parts on our national security. These tariffs and trade shifts are affecting markets everywhere–learn how they’re impacting the aero and rail industries below.
The U.S. aerospace manufacturing industry has maintained the largest positive trade balance of any sector, roughly a $100 billion trade surplus in 2024. It’s the largest manufacturing sector in the U.S. that exports more than it imports. Historically, the 1979 Agreement on Trade in Civil Aircraft eliminated tariffs and established a free trade zone among signatory nations for civil aircraft, engines, and flight simulators, which was meant to encourage global technological development. Because the industry’s supply chain is complex and highly regulated, the Administration’s shifting tariff policies have introduced uncertainty into U.S. Commercial Aviation equipment planning. American aircraft manufacturing is complex, with parts sourced from around the world. The current tariff and trade landscape presents significant challenges. Tariffs not only affect direct costs but also impact market dynamics. U.S. trade policy is central to the aerospace sector’s growth success. In early May, Airbus CEO, Guillaume Faury, called for a return to tariff-free trading for the aerospace sector, and Boeing CEO, Kelly Ortberg, at a Congressional hearing last month testified the plane maker wanted free trade. Understanding this is crucial in the context of global aerospace markets.
Boeing and Airbus delivered 359 aircraft through April 2025, a 17% increase year over year. Both are under pressure to increase deliveries. Boeing delivered 45 commercial jets in April, four more than in March. Airbus delivered 56 in April compared to the 71 they delivered in March. Through the quarter of the year, Boeing has delivered 175 aircraft, including 133 737 MAX, 21 787s, and 11 freighters. At the end of April, Boeing had 6,282 unfilled orders and an official backlog of 5,643 (after adjusting for accounting standards). Comparatively, Airbus’ backlog represents 10.4 years of production based on 2025 production estimates. Boeing’s backlog would last approximately 11 years. Continuing tariff uncertainties and new equipment delivery delays support secondary market values of mid-life aircraft and influence decisions to extend leases (Aercap reported 99% utilization and 84% lease extensions in the first quarter of 2025).
The Bureau of Economic Analysis estimated U.S. GDP fell 0.3% in Q1 2025 from Q4 2024. U.S. rail volumes have remained stable: 1.13 million total carloads were originated in April, up 6.2% over April 2024 (the largest year-over-year percentage gain in 16 months and the third largest in nearly four years). Through the first four months of 2025, total carloads are up 1.8% over the same period last year, with 11 of 20 carload categories seeing gains[2]. The GDP contraction resulted from a surge in U.S. imports in Q1 2025 as businesses front-loaded shipments to beat the anticipated tariffs. Underlying domestic demand rose at a 3.0% annualized rate in Q1, pointing to continued momentum in the domestic economy. The North American railcar fleet and railcars in storage contracted slightly in April, driven by lower industry builds, an aging fleet, and attractive scrap rates. Overall fleet attrition is expected to continue to outpace new builds in 2025 (railcars in storage are below 19%). Pricing for new build rail rolling stock remains elevated due to higher steel prices and input price inflation supporting used rail rolling stock pricing. Above normal temperatures, rising power demands, and higher natural gas prices are driving the near-term outlook for coal (there was a year-over-year increase in carloads of coal in April, up 53,736 carloads, or 23.2%)[3].
The “political” question of whether a “national emergency” exists that allows the tariffs the President has imposed under the 1977 International Emergency Economic Powers Act remains. Steady job growth, consumer spending, and expanding services continue to support economic activity. As markets shift, Rail and Aero equipment play central roles. Perfect information is seldom available. Staying informed is not optional; it’s essential. Explore opportunities. Call RESIDCO.
Glenn Davis 312-635-3161
[1] The tariffs may remain until the Supreme Court Rules.
[2] AAR Policy & Economics Rail Industry Overview, May 2025.
[3] Short-Term Energy Outlook, the U.S. Energy Information Administration.
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.
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.
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