Industrial and mobility (4 of 6)

Industrial manufacturing and aerospace

About 8 minutes to read in full, or 1 minute for the short version belowFacts checked 30 September 2026

In one minute

Companies build machines, electrical equipment, aircraft and engines, then earn money for decades by supplying parts and service for them.

The big idea: An industrial company earns money twice: once when it sells a machine or an engine, often at a thin margin, and then for 20 years or more from spare parts, repairs, upgrades and service contracts on it. The machines already working at customers (the installed base) are often the most valuable thing the company owns. Orders arrive years before deliveries, so the backlog and the rate of new orders tell you the future.

One unit, in numbers: One year of a service contract for one jet engine on a narrow-body aircraft: USD 750,000 comes in, and USD 180,000 (24%) is left after its own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: 8 to 20 percent, higher where the aftermarket is largeRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: MediumA fair amount of money is tied up, in things like stores, stock or equipment. More on capital intensity
The number to watch: Backlog (order book)Orders signed but not yet delivered. Divide by yearly deliveries to see how many years of work it holds.

Ask this first in a case

How is revenue and profit split between new equipment and the aftermarket?

Words used above (3)

Installed base:: All the company's machines still in use at customers.
Aftermarket:: Parts, repairs, upgrades and service sold after the first sale.
Backlog:: Orders signed but not yet delivered.

The industry's other words are explained in Words to know (12).

On this page (17 sections)

How money is made

Makers sell new machines, aircraft or engines under large contracts, often priced years before delivery.
They earn much of their profit afterwards from spare parts, repairs and overhauls on the installed base.
Service contracts charge per hour of use (for engines, per flight hour), so revenue rises when customers use the equipment more.
Upgrades, software and data services such as predictive maintenance add recurring income.
Some also earn from financing, renting and reselling used equipment.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One year of a service contract for one jet engine on a narrow-body aircraft, charged per flight hour. Illustrative, rounded figures.
Line	Amount	ShareShare of revenue
Service fee: 3,000 flight hours at USD 250 an hour	USD 750,000	100%
Minus Spare parts and life-limited parts for overhauls, spread per year	USD 330,000	44%
Minus Overhaul shop labour	USD 120,000	16%
Minus Spare engine pool, logistics and field support	USD 60,000	8%
Minus Reserve for unexpected repairs and durability problems	USD 40,000	5.3%
Minus Contract management and overheads	USD 20,000	2.7%
What is left (contribution)	USD 180,000	24%

Check: USD 750,000 minus USD 570,000 of costs leaves USD 180,000.

So what: The contract earns about USD 180,000 a year, around 24 percent, close to the margin of the largest engine maker's engine business. Revenue follows flight hours but cost follows shop visits, so the levers are how long the engine stays on the wing between overhauls, the cost of parts, and how much the airline flies.

Key measures(8)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Backlog (order book)
Orders signed but not yet delivered. Divide by yearly deliveries to see how many years of work it holds. Glossary: Backlog (order book)
Typical: Airbus ended 2025 with 8,754 aircraft on order, about 11 years of 2025 deliveries[2]
Book-to-bill
New orders divided by revenue (or deliveries). Above 1 means the backlog is growing; below 1 means it is shrinking. Glossary: Book-to-bill
Typical: About 1.1 at ABB in 2025 (orders of USD 36.8 billion against revenue of USD 33.2 billion)[6]
Aftermarket share
The share of revenue from parts and service rather than new equipment. Higher usually means steadier, higher-margin income.
Typical: About three quarters of revenue in GE Aerospace's commercial engines business in 2025 (about USD 24 billion of services out of about USD 32 billion)[5]
Installed base
The number of the company's machines, engines or aircraft in use by customers: the pool that future service revenue comes from. Glossary: Installed base
Service capture rate
The share of the installed base's parts and service spending the maker wins, rather than independent shops.
Production rate
Units built per month, for example aircraft a month. Raising it needs every supplier to rise too.
Typical: Boeing's 737 began moving to 47 aircraft a month in the second quarter of 2026[4]
Overall equipment effectiveness (OEE)
Availability times performance times quality: how much of a machine's possible good output it really produces. About 85 percent is often called world class. Glossary: Overall equipment effectiveness (OEE)
On-time delivery and lead time
How reliably and how fast the company delivers what customers ordered.

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

How is revenue and profit split between new equipment and the aftermarket?
What do the backlog and book-to-bill say about the next few years?
Where is the bottleneck: our own line, a supplier, certification or skilled labour?
How big is our installed base, and what share of its service spending do we capture?
For a footprint question: what is the total landed cost, including freight, duties and quality, not only labour?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Materials, castings and forgings: metal alloys shaped into high-precision parts
Margin varies
Specialist foundries and forging companies, steel and aluminium makers
In aerospace a few certified suppliers of castings and forgings can limit how fast the whole industry grows.
Step 2: Components and sub-systems (tier 2 and 3): bearings, valves, electronics, fasteners
Thin margin
Thousands of mid-sized manufacturers worldwide
Price pressure from the big assemblers; switching is slow because parts must be certified.
Step 3: Systems and engines (tier 1): jet engines, landing gear, avionics, drives, switchgear
Margin varies
GE Aerospace, Safran, Rolls-Royce, Pratt and Whitney, Honeywell, Siemens, ABB
New engines are often sold at a low margin or a loss; the profit comes later from service.
Step 4: Final assembly and brand: aircraft, construction and mining machines, factory robots
Medium margin
Airbus, Boeing, Embraer, COMAC, Caterpillar, Komatsu, Fanuc
Airbus earned an adjusted operating margin of about 10 percent in 2025; US machinery makers averaged about 16 percent in January 2026 data.
Step 5: Sales, dealers and financing: selling, renting and financing the equipment
Medium margin
Dealer networks, carmaker-style finance arms, aircraft leasing companies
Step 6: Aftermarket: spare parts, maintenance, repair and overhaul (MRO), upgrades and software
Fat margin
The makers themselves, airline engineering units, independent MRO shops such as ST Engineering and Lufthansa Technik
Recurring for decades and usually the most profitable part; about three quarters of revenue at the largest jet engine business in 2025.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

Most of the profit sits in the aftermarket: parts, overhauls and service on a large installed base, where the maker knows the machine best and customers rarely switch. New equipment is sold in tough competition, sometimes at a loss, to win that stream. A few makers of engines and critical parts also earn well because customers cannot easily replace them.

Cost structure(5)

The main costs, each as a share of revenue (the money from sales).

Cost of goods sold, US aerospace companies: About 82 percent of revenue[1]
Selling, research and overheads, US aerospace companies: About 9 percent[1]
Cost of goods sold, US machinery makers: About 63 percent[1]
Selling, research and overheads, US machinery makers: About 22 percent[1]
Cost of goods sold, US electrical equipment makers: About 68 percent[1]

Benchmarks(6)

Typical figures for the industry, to check a client's numbers against.

Operating margin, US aerospace companies: About 9 percent[1]January 2026 data; includes defence makers.
Operating margin, US machinery makers: About 16 percent[1]
Operating margin, US electrical equipment makers: About 10 percent[1]
Adjusted operating margin, Airbus, 2025: About 10 percent (EBIT Adjusted EUR 7.1 billion on revenue of EUR 73.4 billion)[2]
Adjusted operating margin, GE Aerospace, 2025: About 21 percent (about 27 percent in its commercial engines business)[5]
Operational EBITA margin, ABB, 2025: About 19 percent[6]

Typical cases(7)

Case prompts you might hear in this industry.

An equipment maker wants to double its service revenue in five years.
Our factory cannot meet demand. Should we build a new line?
An aerospace supplier is late on deliveries and the aircraft maker is threatening penalties. Fix it.
Should we move production to a lower-cost country, given new tariffs?
Should an engine maker offer per-flight-hour service contracts on older engines?
Should we buy a competitor to grow our installed base?
Make or buy: should we keep making a component in-house?

Common traps(6)

Mistakes candidates make in this industry, and what to do instead.

Looking only at new equipment sales and missing the aftermarket, where most of the profit often sits.
Recommending a new plant or line before raising OEE at the bottleneck.
Using full allocated cost in a make-or-buy decision instead of the costs that would really disappear.
Assuming a supplier can ramp up just because the final assembler does.
Reading a large backlog as guaranteed revenue: orders can be deferred or cancelled.
Reaching for a generic framework instead of the real driver of this industry. Instead, split profit into new equipment and the aftermarket on the installed base, and check output at the bottleneck (OEE).

What changed, 2024 to 2026(6)

Recent changes a case could turn on.

Aircraft demand far exceeds supply: Airbus delivered 793 commercial aircraft in 2025, up from 766, ended the year with a record backlog of 8,754, and targets about 870 deliveries in 2026.[2]
Boeing is ramping up again: its 737 began moving to 47 aircraft a month in the second quarter of 2026, and a new 737 production line (the North Line) started low-rate production in July 2026.[4]
Engines, castings and forgings still limit how fast deliveries can rise, which keeps older aircraft flying longer and aftermarket demand high; the largest engine maker's services revenue grew about 26 percent in 2025.[5]
Electrification and data centres drove record orders for grid and electrical equipment: ABB's orders rose 17 percent in 2025 and its order backlog grew 27 percent to about USD 25 billion, led by data centres.[6]
Tariffs on metal content: from April 2026 the United States charges 50 percent on goods made almost entirely of steel, aluminium or copper, 25 percent on many made largely of them, and 15 percent on metal-heavy industrial and grid equipment through 2027, pushing makers to review where they build.[7]
The EU's Carbon Border Adjustment Mechanism, in its definitive phase since January 2026, adds a carbon cost to imported steel and aluminium, key inputs for machinery.[8]

Players by region(8)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: Airbus
Boeing
GE Aerospace
Safran
Siemens
ABB
Schneider Electric
Caterpillar
Europe: Airbus
Rolls-Royce
Safran
Siemens
ABB
Schneider Electric
Atlas Copco
Lufthansa Technik (MRO)
United States: Boeing
GE Aerospace
Pratt and Whitney (part of RTX)
Honeywell
Caterpillar
Deere
Emerson
India: Larsen and Toubro
BHEL
Thermax
Tata Advanced Systems (aircraft parts)
GMR Aero Technic and Air India Engineering (MRO)
Middle East: Strata Manufacturing (UAE, aircraft parts)
Sanad (UAE, engine MRO)
Emirates Engineering
Saudia Technic (Saudi MRO)
Southeast Asia: ST Engineering (Singapore, MRO)
SIA Engineering (Singapore)
Aerospace parts clusters in Malaysia
China: COMAC (aircraft)
Sany and XCMG (construction machinery)
Many component makers
Latin America: Embraer (Brazil, regional jets)
WEG (Brazil, motors)

Words to know(12)

Linked words have a fuller entry in the glossary.

Installed base (glossary entry): All the company's machines still in use at customers.
Aftermarket (glossary entry): Parts, repairs, upgrades and service sold after the first sale.
MRO: Maintenance, repair and overhaul, especially of aircraft and engines.
Backlog (glossary entry): Orders signed but not yet delivered.
Book-to-bill (glossary entry): Orders divided by revenue; above 1 means the backlog is growing.
Order intake: The value or number of new orders signed in a period.
Per flight hour contract: A service deal where the airline pays a fixed rate for each hour the engine flies.
Time on wing: How long an engine flies before it must come off for an overhaul.
OEE (glossary entry): Overall equipment effectiveness: availability times performance times quality.
Tier 1 supplier (glossary entry): A supplier that sells whole systems straight to the final assembler.
Certification: Approval by an authority such as the FAA or EASA that a part or aircraft is safe; changes take time.
Landed cost (glossary entry): The full cost of a product at the customer: production, freight, duties and handling.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Moves common in this industry

Sources(9)

Facts checked on 30 September 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

Practise it

Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.

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