Aerospace

Airbus, Safran, MTU and Rolls-Royce are trading as an oil and travel proxy.

While this is justified at a first-order level, given higher fuel costs and weaker sentiment, the market may be underestimating the more structural implications.

At current levels, oil is no longer a temporary shock but increasingly acts as a sustained tax on the aviation system. This creates pressure on airline margins, constrains pricing power, and raises downside risks to traffic and capacity assumptions over the medium term.

Despite the recent correction with Airbus appearing technically oversold and Safran down sharply, there has not yet been a meaningful reset in underlying expectations. The move still appears to be treated as a cyclical dip rather than the beginning of a broader adjustment.

As a result, the risk-reward remains skewed: upside is likely limited to a technical rebound, while downside remains if oil stays elevated or geopolitical risks intensify.

Importantly, the next leg of pressure could come from revisions to production rates and softer aftermarket trends, particularly for engine manufacturers such as Safran and MTU, given their sensitivity to utilization.

We like the call of our analyst, calling for a prolonged derating of the actors involved in aerospace. Even Airbus, one of our long term favorite, is indeed likely to suffer in the short term. It is time to take some profits and we will return on those names when visibility has improved. While it is important to remember that higher jet fuel is also an incentive for airlines to have new planes with more efficient engines, the sharp rise in kerosene is likely destroying travel demand at a high level.