Winter is coming; structural change likely for the aerospace supply chain
We analyse how airframers like Airbus and Boeing can leverage technology disruptions to reduce the margin gap with their suppliers. The profit impact will be gradual but we believe it will be instrumental in reducing the valuation gap, with suppliers ex aerostructures trading on 2019E EV/EBIT of c.12.0x, while airframers trade on c.8.0x on average. This would expand and perpetuate the significant gap reduction that we expect over 2017-20E, as airframers' earnings grow with volumes. Airbus and Boeing should see upside to their long-term profit margins, while Heico should benefit from new avenues of growth. Dassault Systemes would benefit from digitalisation, GE and Arconic (Restricted) appear well positioned on 3D printing, while in automation, Siemens seems to have the strongest position.