The aerospace and defense (A&D) industry has entered 2025 in a unique position: facing short-term turbulence, yet supported by strong fundamentals and long-term investor confidence. According to the latest Q1 2025 report preview from PitchBook, the sector remains a hotspot for private equity (PE) activity, even as global tensions, tariff battles, and softening travel demand start to reshape the landscape.
In this blog, we break down the key takeaways from the report, investigate the underlying trends, and look ahead to what the rest of the year may bring.
Strong Start to the Year for Private Equity—But Not Without Caveats
Private equity deal activity in the aerospace and defense sector started 2025 with solid momentum. PitchBook estimates 73 deals were closed in Q1, a 24% increase compared to the same quarter last year. However, that number represents a 7.6% drop from Q4 2024, which tends to be a peak quarter for A&D deals due to year-end closings.
What’s interesting about this chart is how consistently strong deal activity has been in recent years, especially in 2021 and 2024. While Q1 2025 is off to a slightly slower start than Q4, it’s important to remember we’re only one quarter into the year.
A closer look at the types of deals reveals where investors are placing their bets. Commercial aerospace parts, in particular, drew significant attention—accounting for 21 of the 73 transactions. That’s not surprising given that both Boeing and Airbus are still struggling to meet demand for new aircraft, which forces airlines to keep older planes in the sky. Those aging fleets need regular maintenance and spare parts—creating a perfect storm of demand for suppliers, and opportunity for investors.
Zooming Out: A Record Year for A&D Investment
If we look beyond just the first quarter, the last 12 months have been big for aerospace and defense investment. From Q2 2024 to Q1 2025, there were 273 PE deals, compared to 220 in the previous 12-month period. That’s a 24.1% increase. But the real headline is the deal value, which jumped from $24.7 billion to $41 billion—a staggering 66.1% gain.
What’s driving this growth? For one, the defense side of the industry continues to benefit from increased government spending, especially due to the ongoing geopolitical uncertainty. But on the commercial side, it’s more about the drivers of global travel and infrastructure.
Even with political risks and macroeconomic headwinds, aerospace remains a long-term growth story. The middle class in emerging markets is expanding. Business travel is returning. And the global economy is still tightly connected with air travel. These underlying trends provide solid ground for investors willing to navigate the volatility.
The Commercial Aerospace Dilemma: High Demand and Geopolitical Drag
While the long-term demand for air travel remains strong, Q1 2025 has brought signs of short-term trouble—particularly in international travel to the U.S.
Following a series of statements from the Trump administration, inbound travel from Canada has plummeted. Bookings fell 40% in February, and by March the decline widened to 71-76% year-over-year. Other countries like Mexico, Turkey, and several Caribbean nations have issued travel advisories warning citizens of potential detainment or discrimination in the U.S.
The impact has been swift. International visits to the U.S. dropped 11.6% in March, with full-year declines projected at over 15%. Some of the steepest drops came from Germany and Spain, down 30% and 25%, respectively.
Major U.S. airlines are already taking action:
- United Airlines is pulling back on U.S.-Canada routes and retiring 21 aircraft earlier than planned.
- JetBlue has withdrawn its financial forecast for the year.
- Frontier is bracing for Q2 losses.
- American Airlines and Southwest are scaling back both international and domestic routes in response to lower demand.
Still, analysts don’t see this as a structural drop in travel demand. Aircraft order books at Boeing and Airbus remain full, with delivery slots booked into the early 2030s, and with extremely large orders to both manufacturers in the past weeks (IAG, Qatar Airways, etc.) Even China’s move to halt Boeing deliveries has had limited long-term impact, on the one hand because it was dropped on May 12th, and on the other hand as other airlines / countries would have quickly moved to claim the freed-up slots. The global appetite for commercial aircraft remains high—and that’s a reassuring signal for investors.
Private Equity Takes a Breather in Commercial Aerospace
Even with that long-term optimism, private equity activity in commercial aerospace have slightly dipped in Q1. The 21 deals recorded this quarter were well below the 113 transactions in all of 2024 and 86 in 2023. Total deal value was also down, at $2.1 billion, compared to $11.9 billion last year.
This drop is likely tied to uncertainty around tariffs and trade policy. For aerospace suppliers—often targets of platform or add-on acquisitions—input costs and international logistics are key factors in valuation. When those become unpredictable, deals get delayed or downsized. Even though, we should be very careful in comparing just one quarter as Q1 is usually the slowest of the year.
However, the fundamentals of the parts segment remain strong. It’s fragmented, essential, and rich with opportunity for consolidation. Each aircraft has thousands of components, and each part has a defined replacement cycle. For PE firms, controlling a greater share of these supply chains can translate into efficiency, pricing power, and long-term value.
Looking Ahead: What’s Next for Aerospace & Defense PE?
So where does the industry go from here?
The outlook depends on a mix of political, economic, and sector-specific dynamics:
- Tariff policy: Future trade negotiations and tariff enforcement will have a major impact on deal activity—especially for cross-border suppliers and manufacturers.
- Global stability: Continued tensions in Eastern Europe, the Middle East, or the Asia-Pacific region could drive defense spending even higher, sustaining investor interest.
- Travel recovery: As international relations (hopefully) stabilize, the decline in tourism and business travel may prove temporary—opening the door to a rebound in commercial aerospace activity.
One thing is certain: private equity isn’t walking away from aerospace and defense anytime soon. The sector’s complexity, strategic importance, and long-term growth potential continue to offer unique opportunities for investors who understand the risks—and know where to find the value.
If you’re a fund manager, operator, or advisor with exposure to A&D, Q1 2025 is a reminder to stay alert, stay nimble, and keep your eyes on both the horizon and the fine print.