The aviation industry has all the customers it needs right now. Unfortunately, it doesn't have the planes and parts it needs to serve them.
Commercial travel demand has rebounded strongly from the precipitous drop-off it experienced during the global pandemic. Demand for air travel grew a healthy 10.4% last year. And it's projected to continue growing at an annual rate of 4.2% through 2030.
Unfortunately, there's a severe shortage of new aircraft available to meet that rising demand. Due to a hangover from the pandemic, which caused major supply chain disruptions for engine and aircraft manufacturers, as well as shortages of both skilled labor and raw materials like semiconductors, there's currently a global backlog of more than 17,000 aircraft.
That will be rough on airlines, as they will struggle to find enough new aircraft to meet demand and will also face higher maintenance and leasing costs. The International Air Transport Association -- the global trade association for airlines -- expects supply chain problems to cost airlines more than $11 billion this year.
Aircraft suppliers look to benefit
But the supply demand mismatch is expected to be a huge boon to aircraft leasing companies, maintenance and repair companies, and plane, engine, and parts manufacturers. How can investors benefit from this situation?
The iShares US Aerospace & Defense ETF (NYSEMKT: ITA) is the largest U.S.-listed exchange-traded fund focused on the aerospace and defense sector. It's up 48% in 2025 (more than three times the gain of the S&P 500 index this year), and it looks to head higher as aviation industry problems persist -- perhaps for years.
NYSEMKT: ITA
Key Data Points
The ITA ETF tracks the Dow Jones U.S. Select Aerospace & Defense Index, which means it doesn't try to pick individual stocks but instead attempts to mirror the holdings and performance of that index. Its largest holdings are:
- GE Aerospace (GE +1.15%), a maker of jet engines, accounts for 21.2% of the ETF.
- RTX (RTX 0.34%), which makes engines and defense technologies (16%).
- Boeing (BA 2.80%), which makes commercial airplanes and defense technologies (8%).
- Lockheed Martin (LMT +0.01%), a defense and aerospace manufacturer (4.5%).
- L2Harris Technologies (LHX +0.22%), a maker of command-and-control systems (4.5%).
- General Dynamics (GD 1.19%), a manufacturer of defense systems and products (4.4%).
There are 33 other stocks in the ETF beyond those six (for a total of 39 holdings), which makes it significantly diversified within that sector. The fund has assets under management of about $12.2 billion, and its annual expense ratio, which shareholders pay, is a low 0.38%, which is about average for industry-specific ETFs.
The ETF is also highly liquid. As of August 2024, it traded with a 0.05% 30-day median bid-ask spread, which means there's a tiny gap between the buying and selling price. It also sees an average of some 664,000 shares traded over a 30-day period, which means it's easy for investors to get in or out without impacting the price.
Image source: Getty Images.
An ongoing shortage of planes
Aircraft industry executives say they expect the shortage of planes to last several more years, as the global supply chain is difficult to repair and is not yet close to recovering to its pre-pandemic levels of output.
That's a big part of the reason that aerospace stocks are having a banner year in 2025. GE is up 84% year to date; Boeing is up 23%; RTX has climbed 55%; Howmet Aerospace (HWM +1.15%), another holding in the ITA ETF, is up 83%; and Huntington Ingalls Industries (HII 0.13%), yet another holding, has soared 54%.
A major supply disruption is not good for airlines or flyers, but it could be good for investors.