Ryan Kirby, junior partner and Joseph Lakaj, analyst, at Alderman & Company identify the key trends they expect to see in the US commercial aerospace market in 2026

2025 was a volatile year in the stock market, and US commercial airline stocks were not immune from the impact of this.

American, Delta, and United (US legacy airlines) reported strong 2025 performance through Q3, while the low-cost carriers and ultra-low-cost carriers delivered weak results.

This continually developing airline landscape is impacting its supply chains, valuations, and M&A activity.

In 2025, the S&P 500 started the year reaching a record high. Then in April, the S&P wiped out gains and dropped by almost 20% – widely attributed to the announcement of tariffs.

The stocks that declined in price the most were consumer discretionary or consumer discretionary adjacent names, which include airlines.

Many analysts covering commercial aviation across Wall Street were worried about falling consumer sentiment, specifically that consumers were going to cut back their spending on airline travel.

However, after the April drop in the market, US stocks went on a bull run to the end of 2025. Approximately 38% return on the S&P 500 was achieved throughout that timeframe.

The US commercial airlines had varying performances in 2025, primarily depending on their business model.

As summarised in the table below, the legacy airlines of American, Delta, and United reported operating profits of $1,015mm, $4,355mm, and $3,328mm, respectively, from Q1-Q3 in 2025.

Legacy airlines attributed their profitability in 2025 to successful premium services (front of the cabin seats, lounges, etc) as well as offering multiple tiers of economy seating and ticket options.

As the legacy airlines successfully offered basic economy options which unbundled an optional amount of services (baggage, seat selection, etc.), they were able to be more price competitive versus their lower-cost carrier competitors.

Notably, American was outperformed by Delta and United in the first three quarters of 2025, but still booked $1,015mn of operating profit.

The separation from Delta and United to American was largely attributed to more successful credit card partnerships and loyalty programs (high margin revenue), as well as American holding more debt than its two peers, which inhibited its expansion opportunities.

Source: EDGAR – 10-Q (quarterly reports) for each respective company

While revenue for the US low cost airlines exceeded or approached pre-pandemic totals, profitability was down for all of these airlines.

Spirit Airlines, not listed in the table below, re-filed for Chapter 11 bankruptcy in August, 2025. All airlines experienced increases in staffing costs throughout 2025 (and since the pandemic), but on an absolute basis, LCCs and ULCCs were negatively impacted more than the legacy airlines.

Additionally, LCCs and ULCCs lost market share to legacy airlines as the legacy airlines were more competitive in their pricing of basic economy seats.

Weakened consumer sentiment also softened demand for the LCCs and ULCCs, as their passengers tend to be more price elastic than the robust business travel demand for legacy airline seats.

Simply put, US LCCs and ULCCs struggled, and will likely continue to struggle, when a “low cost environment” does not exist.

Notably, many European LCCs and ULCCs were able to achieve strong operating profits, such as Ryanair and easyJet, due to leaner labor business models, aggressive cost control, and a number of other factors.

Source: EDGAR – 10-Q (quarterly reports) for each respective company

Declining profitability in the LCCs and ULCCs segments served as a key catalyst for M&A activity.

The low cost and regional airlines experienced an increase in consolidation activity as they tried to improve operating leverage, gain economies of scale, and achieve network and market synergies.

Republic and Mesa announced their merger at the end of 2025; Allegiant recently announced a potential acquisition of Sun Country; and Frontier and JetBlue made multiple attempts to acquire or merge with Spirit Airlines.

Strong US legacy airline profitability is excellent for the US commercial aviation middle-market. Profits last year for the legacy airlines have been, and are being, invested in capital expenditures.

As a percentage of airline revenue, American Airlines, Delta, and United invested 5%, 8%, and 9%, respectively, into capital expenditures from Q1-Q3 of 2025.

Over the past year and seemingly in the near future, American Airlines is allocating its budget primarily toward premium standardisation, specifically the delivery of Boeing 787-9 and Airbus A321XLR aircraft featuring the new Flagship Suite.

The remaining capital is focused on retrofitting the existing Boeing 777-200ER fleet and upgrading regional jets with larger overhead bins to align with mainline standards.

Delta appears to have a focus on expanding its fleet with purchases of widebody and premium-heavy narrowbody jets, including the Airbus A350-900, A330-900, and A321neo, to protect its high-margin business travel lead.

Delta is also investing in its TechOps division (MRO business), which grew revenue by 29% in mid-2025, requiring tools and facilities to service third-party engines.

United Airlines has spent the lion’s share of its capital expenditures on the delivery of Boeing 737 MAX and Airbus A321neo to replace smaller regional jets and lower per-seat costs.

The rest of the budget has been spent on interior retrofits for its existing narrowbody planes with seatback screens at every seat, larger overhead bins, and the implementation of Starlink Wi-Fi.

The legacy airlines have demonstrated a focus on “premiumisation” of their fleets, aircraft interiors, and connectivity.

As aerospace and defence M&A bankers, we’re seeing a proportional increase in potential buyer inquiries in middle-market commercial aviation companies, matching this “premiumisation” segment.

Consequently, strategic and financial acquirers are placing valuation premiums on manufacturers with programmatic exposure to these specific retrofit cycles, viewing them as critical assets that may achieve higher than historically achieved margins.

The potential buyers that we speak with regularly (strategic, private equity, family offices, etc.) are also emphasising the importance of a strong customer base for the targets they’re evaluating to buy.

While customer diversification and relationships with blue-chip customers have historically been important considerations for potential acquirers, in today’s commercial aviation market, contracts or long-standing relationships with American, Delta, and United Airlines command higher premiums than historically.

New growth opportunities for middle-market commercial aviation companies serving the LCCs and ULCCs are still present despite poor financial results.

As low cost carriers focus on profitability, we’ve seen an increase in middle-market software companies and technology providers developing products and systems that can produce ancillary revenue streams or improve the efficiency of operations for the low cost carriers.

2025 highlighted the strength of the US legacy airlines and the challenges facing low cost operators.

The current commercial aviation M&A environment is dynamic and rewards companies with, including but not limited to: high-margin potential tied to “premiumisation”, blue-chip customer relationships, and solutions that can improve operational efficiency.

Sources:
https://www.oliverwyman.com/our-expertise/insights/2025/feb/global-fleet-and-mro-market-forecast-2025-2035.html

https://meridianib.com/wp-content/uploads/Meridian-Capital-Q2-2025-ADS-Market-Update_vF.pdf

https://www.iata.org/en/iata-repository/publications/economic-reports/global-outlook-for-air-transport-december-2025/