What happened
The Paris Air Show, the commercial aviation industry's most important event, returned in June after a four-year pandemic break. The big takeaway from the show was that the appetite for airplanes shows no sign of slowing. That excitement lifted a whole range of aerospace stocks, including TransDigm Group (TDG 0.20%), which saw its shares rise 15.6% for the month, according to data provided by S&P Global Market Intelligence.
So what
Airlines and the companies that supply them were hit hard by the pandemic, but demand for travel has rebounded nicely. In a climate with strong demand for travel, and pressing needs by airlines to become more fuel-efficient to meet toughening climate standards, there is strong demand for new airplanes.
There were 1,266 orders and option announcements during the show, according to FlightGlobal, ranking this as one of the best air shows in the last decade. The orders came from around the globe, with particular strength coming from emerging markets like India.
It was not a given that demand for aircraft would hold up as well as it has, given the uncertainty caused by the war in Ukraine and talk of higher interest rates throwing parts of the globe into a recession. And while orders tend to have some flexibility, investors were encouraged by the visibility these orders create: It will take years for Boeing (NYSE: BA) and Airbus (OTC: EADSY) to work through their order books.
TransDigm is an under-the-radar beneficiary of all of this business. The company makes a range of components and subsystems for a wide range of airframes, and both new and spare parts for existing jets. The stock traded up on the momentum created by the air show.
Now what
TransDigm has long been one of the hidden gems of the aerospace sector, generating a total return of more than 8,500% since its 2006 initial public offering. Though not well known to consumers, the company's formula of strong financial controls and acquiring components that are both hard to commoditize and essential to flight operations has served investors well through the years.
There was already reason for optimism surrounding the defense side of TransDigm's order book, with the U.S. and allied nations scrambling to bulk up in response to growing geopolitical uncertainty. But commercial has always been the key to TransDigm's success, and the Paris Air Show went a long way toward reassuring investors there is ample opportunity for growth from here.
