Whether a negotiated end to the Iran conflict holds will determine the longer-term direction of energy markets and the pricing of Jet-A and diesel. As Iran flexes its leverage over the Strait of Hormuz, the world’s economies face headwinds and continued Mideast geopolitical turbulence. Oil and jet fuel prices spiked in the early days of hostilities, but not as much as the 1973 Arab Oil Embargo (+300%), the 1979 Iranian Revolution (+160%), and the first Gulf War in 1990 (+130%). With an apparent agreement to open the Strait, Brent Crude has traded down to $73 per barrel, and West Texas Intermediate to $71. Opening the Strait is a cooperative game. Even with Brent back to $73, Jet-A and diesel prices lag crude on the way down. Refining margins widen as the benchmark falls and operator fuel contracts reset slowly, requiring airlines to carry elevated fuel costs well after the headline price has eased, pressuring operating margins. Improving fuel efficiency will be a continuing challenge.
Energy is also what is keeping the Fed cautious. The FOMC’s first meeting under new Federal Reserve Chairman Kevin Warsh left target benchmark rates unchanged between 3.5% and 3.75%. The recent energy shocks are inflationary and work against rate cuts. The AI build-out is driving a bull market, leaving investors feeling flush and spending freely. Hiring is picking up. Expectations of inflation and labor market conditions will determine the future direction of rates.[1] Markets now expect the Fed to hold rates steady (but nine of 19 Fed governors penciled in at least one rate increase by year’s end).[2] Warsh used his first press conference to shorten the policy statement and eliminate forward guidance (he chose not to submit his own interest rate projection for the Fed’s closely watched “dot plot”). Whether the Fed will shrink its balance sheet remains an additional source of uncertainty. For lessors, higher-for-longer rates support lease pricing and reinforce the premium on equipment already in service.
Aero passenger and rail freight demand is tied to trade and economic activity. It’s the expectation of sustained spending and a growing economy that provides the foundation for investment. If fuel prices remain high, markets will search for alternatives. Commercial air carriers will act to optimize route profitability, manage capacity to keep load factors high, market premium seating, and focus on creating ancillary sources of revenue. Given the state of the U.S. economy, consumers continue to pay higher ticket prices as demand for passenger air travel remains high. Supply chain disruptions are continuing to impact new equipment deliveries, resulting in the average age of the global commercial fleet rising to a record 15.2 years.[3]
The same demand picture shows up on the ground. Rail freight growth has become more widespread. For the first 23 weeks of this year, U.S. railroads reported cumulative volume of 5,215,944 carloads, a 3.2% gain over the prior year, and 6,403,177 intermodal units, a 2.7% rise from last year.[4] The growth points to improvement in the underlying economy. Agricultural traffic is strong. Grain traffic is at its highest level since 1990 (grain mill products set a new record).[5] Rail container volumes show resilience in consumer and trade demand. Chemical shipments have increased year over year, reaching a record high in May. Industry-wide fleet utilization remains high, and lease renewal pricing is positive.
Strong rail volumes and supply-constrained aero, against a backdrop of sticky rates, AI-driven investment, and pro-domestic tax policy, make midlife equipment with cash-generating lease streams the right place to be right now. Call RESIDCO.
David Kolber 312-635-3152
dkolber@residco.com
[3] International Air Transport Association, Airport Industry News, June 26, 2026.
[4] Railway Age weekly data compared to same week last year, June 17, 2026 “for the week ended June 13th U.S. Rail Freight Traffic Up 7.2%.”
[5] American Association of Railroads, June 2026 Policy and Economics report.
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.
It’s happened before. The Arab Oil Embargo, which ran from October 1973 through March 1974, was a result of the Yom Kippur Arab-Israeli War.[1] Arab Petroleum Exporting Countries sought to stop oil to any country assisting Israel. Since the U.S. supplied Israel with weapons, a total U.S. oil embargo was imposed, resulting in the price of oil rising 300% to 400% in the U.S. (the embargo ended in March 1974, but the price of oil remained higher). Today it’s different. With shale oil, the U.S. has consistently been a net exporter of petroleum and the world’s largest oil producer. Still, the impact of the current conflict with Iran (which began on February 28) on aero and rail opportunities has caused jet fuel costs to more than double. Major U.S. airlines are adjusting operations[2] and financial outlooks. United is “tactically pruning” its schedule, cutting approximately 5% of planned capacity (“temporarily unprofitable flights”) during the second and third quarters of 2026, and stress-testing a scenario in which oil hits $175 per barrel and remains above $100 through the end of 2027. Despite capacity cuts, United Airlines CEO Scott Kirby[3] stated the airline will not furlough staff or delay the delivery of new aircraft: Boeing 787-9 Dreamliners, Airbus A321neos, A321XLRs, Boeing 737 MAX jets, and CRJ450 regional jets operated by SkyWest (for newer aircraft; the A320neo and the 737 MAX families are the most defensible positions). Taking delivery of more fuel-efficient models is an obvious way to reduce costs, but airframe OEMs have been unable to meet demand for new equipment, and new generation engines have delayed deliveries. Given the scale of OEM backlogs and ongoing supply chain disruptions, delays mean the supply-demand imbalance will support existing mid-life aircraft well into the 2030s. Scott Kirby feels premium travel is strong enough to allow United to raise fares by as much as 15% to 20%, recouping United’s higher jet-fuel cost by early next year.
Rail sits in a different position. Class One freight railroads operate on a 140,000-mile route network (the largest in the world). It’s 100% diesel dependent, and rail carriers use a rail fuel surcharge to mitigate the effect of fuel cost fluctuations. With higher fuel prices, it is a beneficiary of a modal shift away from trucking, as truckers are currently paying over $5 per gallon for diesel. And, with the Gulf energy shocks, the global food supply chain is under stress, driving demand for grain and fertilizer hoppers and ethanol tank cars. The Association of American Railroads’ April 7th Rail Time Industry Overview reported a first-quarter pickup in U.S. rail traffic. U.S. railroads originated 2.68 million carloads in the first quarter of 2026, up 4.2% over 2025. Carloads averaged 223,676 per week, the most for the first quarter of a year since 2019 (carloads were up year-over-year in each of the first three months of 2026). Thirteen of the twenty carload categories saw gains over the comparable period last year. Excluding coal, carloads were up 4.5% in the first quarter over last year and, at 1.98 million, the most since 2015. The AAR Freight Rail Index (FRI), which is a useful gauge of rail traffic categories and is well correlated with the economy, averaged 114.7 for Q1 2026, the highest for any quarter since Q4 2018.
The U.S. economy remains resilient (the S&P 500 has more than tripled in the past decade). In March, the Bureau of Labor Statistics reported nonfarm payrolls increased by 178,000 while the unemployment rate fell to 4.3%. Few are predicting a recession. At its April meeting (Powell’s final meeting as Fed chair), the Fed left rates unchanged, electing to “wait and see” what the war’s impacts might be.
Aero and Rail opportunities can be broken into three strategic investment categories depending on risk appetite and time horizon: 1) investors who want immediate lower risk exposure, 2) investors with distressed asset appetite, and 3) long-term strategic investors. Searching for the best Aero and Rail investments for your risk profile? Call RESIDCO.
Glenn Davis 312-635-3161
[1] The Yom Kippur War lasted between October 6 to October 25, 1973.
[2] Direct routing, speed reductions, network optimization.
[3] March 20, 2026 Message from United CEO Scott Kirby to Employees.
AERO AND RAIL INVESTMENT – ACT WHEN UNCERTAINTY CREATES OPPORTUNITY
With no slack in the system, demand for air travel continues to outpace expectations. Air passenger traffic has grown from approximately 665-677 million in 2000 to 930 million passengers today. Approximately 17.1 million passengers are projected to fly between March 1 and April 30 this year, with Airlines for America estimating roughly 2.8 million passengers in the air every day through the spring travel season. United Airlines CEO Scott Kirby underscored the strength of demand when he announced that March 9th set a new all-time single-day revenue booking record for the carrier – up 36% over the same day in 2025. Delta, American, JetBlue, and Frontier Group also signaled that strong demand is expected to extend well into spring. Global tensions in the Strait of Hormuz and the ongoing Iran-Israel conflict have pushed Brent crude over $100 per barrel. As of late March, jet fuel, which had been forecast in the $2.27–$2.42 per gallon range, is averaging between $3.90 to $4.57 per gallon, roughly double the price of a year ago. Fuel cost escalation will compress airline margins and put pressure on operations (United’s Scott Kirby said the carrier will cut 5% of planned flights as fuel costs surge). Despite struggles to pay TSA agents and disruptions at checkpoints, passenger demand has not softened meaningfully.
New aircraft deliveries continue to lag orders. Lessors with well-maintained, properly configured aircraft are in a strong position. Age, flight cycles, and maintenance status affect valuation, particularly when an airframe is approaching a heavy C-check or an engine is nearing a shop visit. A fresh overhaul or recent engine shop visit improves lease rates and resale values. Cabin configuration and remarketing flexibility also matter as carriers reassess network strategies in the current higher fuel-cost environment. Newer aircraft offer improved fuel burn and lower operating costs, but acquisitions come at a premium to the capital cost of existing equipment.
The Association of American Railroads’ March 6th Rail Industry Overview reported total U.S. carloads averaged 224,737 per week in February 2026 – the strongest February performance since 2019 and up 6.5% over February 2025. For the first two months of the year, carloads totaled 1.76 million, up approximately 92,000 units over the same period last year. Fourteen of the 20 major carload categories posted year-over-year gains in February, led by grain, coal, chemicals, and petroleum products – a broad-based result that reflects underlying economic activity. U.S. intermodal shipments averaged 280,687 units per week in February, the highest ever recorded for that month, and marked the first year-over-year gain for intermodal in six months. The AAR Freight Rail Index, which tracks seasonally adjusted carloads and intermodal shipments in segments most sensitive to broader economic conditions, rose 1.8% in February over January – its third month-to-month increase in the last four months. For rail equipment, these data points support equipment utilization and underpin residual values.
Q4 GDP growth was revised down to 0.7%. February PCE inflation is estimated to have increased 3.0% year over year. Consumer sentiment slipped to 55.5%. March 18th, the Fed held interest rates steady (3.5%-3.75%). Fed policy makers are still expecting a one-quarter-point cut by the end of 2026. With tax cuts supporting investment, the economic backdrop remains strong. Aero demand is holding, and supply remains constrained. For rail, the latest data points to continuing carload freight demand. Both sectors are well-positioned. Portfolio management requires a clear-eyed view of residual values and a readiness to act when uncertainty creates opportunity. Be prepared. Call RESIDCO.
Glenn Davis 312-635-3161
[1] Airlines for America, News Update, February 24, 2026.
[2] March 30, Brent was trading around $107.92 to $108.63 per barrel, West Texas Intermediate at $101.65.
[4] Association of American Railroads, Policy & Economics, Rail Industry Overview, March 6, 2026.
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
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.
RESIDCO’s size and wholesale capability is a competitive advantage. We respond quickly and creatively to ever-changing market conditions.
70 W Madison St, Suite 2200
Chicago IL 60602 – 4275
Recent Posts
AERO AND RAIL EQUIPMENT INVESTMENT – WHAT’S MOVING THE MARKETSJuly 1, 2026 - 4:07 pmWhether a negotiated end to the Iran conflict holds will determine the longer-term direction of energy markets and the pricing of Jet-A and diesel. As Iran flexes its leverage over the Strait of Hormuz, the world’s economies face headwinds and continued Mideast geopolitical turbulence. Oil and jet fuel prices spiked in the early days of […]
AERO AND RAIL EQUIPMENT – CAPTURING COMPETITIVE ADVANTAGEJune 17, 2026 - 8:13 pmNewly 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 […]
AERO AND RAIL MARKETS – AN INVESTOR’S PLAYBOOKMay 1, 2026 - 7:32 pmIt’s happened before. The Arab Oil Embargo, which ran from October 1973 through March 1974, was a result of the Yom Kippur Arab-Israeli War.[1] Arab Petroleum Exporting Countries sought to stop oil to any country assisting Israel. Since the U.S. supplied Israel with weapons, a total U.S. oil embargo was imposed, resulting in the price […]