Masters of the Air

The European aerospace industry, particularly the aircraft engine manufacturing sector, currently benefits from a favorable capital cycle driven by high barriers to entry and persistent supply-side constraints. Ben Slingsby, an analyst for Marathon’s European portfolios, highlights that the industry’s shift toward an oligopolistic structure—following post-Cold War consolidation—has empowered engine original equipment manufacturers (OEMs) like Rolls-Royce, Safran, and MTU Aero Engines. These companies utilize a "razor-blade" business model, generating long-term, high-margin revenue through aftermarket services and flight-hour agreements. With global air travel demand growing at 5% annually and a record backlog for new aircraft, existing engines are being flown longer and serviced more frequently. This dynamic, coupled with strong balance sheets and disciplined capital allocation, positions these engine OEMs to continue compounding earnings despite optically high valuation multiples.