As a firm deeply engaged in the aerospace and defense sector, and having recently spent time with key sector participants at the Paris Air Show, Goodwin is fortunate to have a front-row seat for viewing the forces shaping this sector and resulting sector dynamics. And across every recent conversation and interaction, one theme has stood out: the need to stay focused on value, execution and long-term positioning, with confidence in longer-term tailwinds notwithstanding near term disruptions.
The Q1 2025 Pitchbook Aerospace and Defense report reinforces what we heard on the ground in Paris. Overall deal activity slowed in the quarter, and based on preliminary indications in the first half of 2025 as well. Nonetheless, capital is still being deployed in aerospace and defense, M&A activity is ongoing and innovation by early-stage growth companies is robust, with the sector characterized by durable and likely increasing demand, resilient supply chains and room to scale.
Notable acquisitions in 1H 2025 show the sector's resilience: RTX sold its cybersecurity and intelligence business to Veritas Capital for $1.3 billion. H.I.G. Capital acquired EMCORE's navigation unit. Acorn Growth bought UK-based Aerospares 2000. Tinicum acquired defense contractor Aeronics. AEA Investors acquired Kellstrom Aerospace and AE Industrial Partners took over Yingling Aviation. Greenbriar Equity invested in Global Aviation Services. These deals reflect strong interest in specialized and aftermarket assets.
Global Deal Activity Slowed in Q1, but Key Areas Remain Active
Private equity activity in aerospace and defense declined in early 2025, amid an overall slowdown in dealmaking. Globally, 73 deals closed in Q1, down from 79 in Q4. Aggregate deal value dropped to $7.7 billion from $14.9 billion in the prior quarter.
In the U.S., total private equity deal activity fell nearly 30% in Q1 2025 compared to Q4 2024, according to Pitchbook's Midyear Private Equity Outlook. Across sectors including healthcare, industrials and technology, deal volume slowed as macroeconomic uncertainty, high interest rates and tight credit markets continued to weigh on buyers. Preliminary Q2 data shows modest improvement.
Despite the pullback, relevant data indicate that interest remains strong in specific areas:
- Commercial aerospace parts saw the most deal activity, driven by ongoing production delays at Boeing and Airbus that are forcing airlines to keep older aircraft in service,
- Defense continues to attract capital, supported by geopolitical instability, multiyear procurement cycles and the prospect of increased defense spending by many nations,
- Airline services remain attractive in theory, especially MRO and parts businesses, but the market is fragmented. Many targets are small, which limits deal size and some segments face uneven demand tied to airline spending cycles. That said, strong aftermarket activity and the need for fleet support are keeping interest high among buyers who know how to navigate the space.
The development of space as a key aspect of commerce and defense may present, to borrow a phrase, a universe of opportunities.
Activity in Europe is on the Uptick
Defense spending across Europe is rising, driven by individual countries rather than the EU as a whole. Nations like Germany and Poland are increasing their budgets in response to NATO commitments and broader security concerns. While the European Commission has launched initiatives like the €800 billion ReArm Europe program, most defense spending still flows from national governments. This surge in investment is fueling demand for large defense contractors, with downstream impact on midsized suppliers and key platforms across the region.
For business leaders and operators, these are important shifts. Industry observers report growing preferences for:
- Local suppliers with secured logistics and procurement systems are being prioritized. This shift supports more production and sourcing within Europe.
- Regional platforms that meet European defense and compliance standards are gaining traction. These companies are better positioned for contracts tied to EU and NATO initiatives.
- Governments and contractors are reducing reliance on non-European hardware, leading to increased demand for European-built systems and stronger regional supply chains.
Companies that understand and anticipate these shifts will be better positioned for growth.
Aerospace Parts Stand Out as a Scalable Investment and Growth Category
The aerospace parts category remains active and investable. Nineteen parts-related deals closed in Q1, including Trive Capital's acquisition of Precision Aerospace and Loar Group's purchase of Applied Avionics. Businesses in these subsectors tend to operate in niche areas, often as sole-source suppliers and typically have longstanding relationships with OEMs or airlines.
Several factors continue to drive strong demand in the aerospace parts sub-sector:
- Commercial fleets are aging, and many aircraft are flying longer than expected, increasing the need for regular maintenance
- Airlines are focusing more on reliability as delivery delays and safety concerns persist
- The parts space remains highly fragmented, which creates real opportunities to scale through consolidation
It's also important to distinguish between traditional aviation parts suppliers and those focused on newer platforms like electric aircraft or space systems. The market forces, investment theses and risk profiles are different, and grouping them together can make it harder to assess where the real momentum is. Investors and strategics alike are starting to separate the two when evaluating deals and market opportunities.
Tariff Volatility Is Creating Pressure but Also Driving Adjustments
Few sectors are free of headwinds, of course, and tariff-related uncertainty remains a central theme in 2025 for industry participants whose businesses touch the U.S., which means most of them. The back-and-forth between the U.S. and China has created real consequences, such as:
- RTX has projected an $850 million impact to profits this year,
- Boeing has had to rehome dozens of aircraft rejected by Chinese airlines, and
- Airbus and GE Aerospace are dealing with higher input costs and sourcing issues.
In response, many companies report reassessment supply chains, evaluation of alternative partners, seeking to diversify access points for essential minerals and investments in operational efficiencies. There are positives in the mix, such as the recent US-Ukraine agreement on critical minerals and recent U.S. legislation holding taxes on businesses constant.
Should the tariff environment stabilize, the sector could be poised for, well, a takeoff.
What These Dynamics Mean for the Industry
This is not a moment for generalizations. The landscape is uneven. Some subcategories are slowing. Others are seeing more competition for fewer viable deals. Across the board, however, demand remains intact. Aircraft are flying. Governments are investing. Supply chains are evolving.
We expect to see:
- Continued activity in commercial aerospace parts and maintenance, repair and overhaul,
- More investment in European defense platforms and suppliers, and
- Strong interest from both sponsors and strategics in platform-building opportunities.
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