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RAIL & AERO MERGERS PROLIFERATE IN A SOUND ECONOMIC CIRCUMSTANCE

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.

Glenn Davis 312-635-3161

davis@residco.com

[1] With three dissenting votes for the first time since 2014 and four nonvoting regional bank presidents opposed.

[2] AAR Rail Industry Overview, November 2025.

[3] The highest in two years.

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POSITIVE MARKET SENTIMENT DRIVES 2026 AERO AND RAIL SECTORS 

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

davis@residco.com

[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.”

[2] AAR Rail Industry Overview, November 2025.

[3] Following a November 4th crash, the FAA grounded all tri-engine MD-11, MD-11F, DC-10 and MD-10 aircraft after a left hand engine and pylon detached during takeoff.  The aircraft was 34 years old, and the separation appears to be caused by metal fatigue.

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