What happened

Airlines have been hit hard by the COVID-19 pandemic. The industry's struggles have brought down many stocks that rely on aviation for a substantial chunk of their revenue. But airlines in recent days have been mounting a comeback, and the stocks that accompanied them on the way down are now rallying as well. 

Shares of Embraer (NYSE:ERJ) traded up 18% heading into the close Monday, while shares of Triumph Group (NYSE:TGI) gained 15% and General Electric (NYSE:GE) climbed 8% for the day.

So what

These companies share one important group of customers.

Embraer is a Brazilian plane-maker attempting to market its new generation of small commercial jets that airlines use to serve smaller cities. GE, which has a wide range of businesses, hoped to use its aerospace and airplane engine segment to help pay down its debt and fund a turnaround. Triumph makes a range of components and parts for airlines and defense contractors.

A GE9X Engine hangs off a wing in flight.

Image source: General Electric.

As airlines scrambled to cut flights and ground planes due to the pandemic, all three businesses saw revenue take a hit and stocks tumble. Now, with airlines slowly beginning to rebuild their flight schedules, investors are warming to the shares.

All three stocks are dealing with company-specific issues. Embraer was left at the altar by Boeing and is now attempting to find a new partner for that $4 billion deal. Triumph is attempting to shed poor-performing businesses after years of underwhelming results, but faces uncertain demand for the remaining units it would like to sell. GE has cut its overall workforce by about 10%, but some bears argue the company's cash issues are even worse than investors realize.

All these challenges will be simpler to resolve if commercial aerospace begins to normalize, boosting cash flows and valuations to companies serving the sector.

Now what

We have bounced off the bottom. If the uptick in travel holds, these stocks should all be able to avoid the lows they hit back in March. But that's a big "if," considering we still don't know if a second wave of the pandemic is around the corner or exactly how wounded the economy will be post-pandemic.

Even without a second wave, airlines expect it will take years for travel levels to normalize.

GE shares are still down 24% year to date, and shares of Embraer and Triumph have lost about half of their value in 2020. We're well off the lows, but investors should not underestimate the issues all these companies still face in the quarters to come.