RBC Bearings (RBC): A High-Conviction Buy as Aerospace Recovery Drives Margin Expansion and Pricing Power

The aerospace industry is undergoing a historic rebound. After years of pandemic-induced turmoil, air travel demand has surged, with global passenger traffic up 11.6% year-over-year in 2024 and production backlogs at commercial manufacturers reaching record levels. Yet, this revival is not without its challenges: supply chain bottlenecks, geopolitical tensions, and an aging aircraft fleet are creating a paradox of pent-up demand and constrained supply. In this environment, companies that can navigate operational complexity while capturing pricing power are poised to outperform. RBC Bearings (RBC) is one such standout, leveraging its strategic position in aerospace supply chains to deliver margin expansion and resilient growth.

The Aerospace Recovery: A Tailwind for Precision Components

The global commercial airliner fleet is projected to grow by 32% over the next decade, driven by narrow-body aircraft demand and a record $156 billion MRO market. However, production rates remain stubbornly below pre-pandemic levels, with Boeing and Airbus struggling to clear a 14-year backlog. This imbalance has forced airlines to operate older, less fuel-efficient aircraft, accelerating wear and tear and boosting demand for maintenance services.

For component suppliers like RBC Bearings, this creates a dual opportunity: 1) Growth in original equipment (OEM) production as manufacturers ramp up output, and 2) Expansion in the aftermarket as airlines invest in repairs and replacements. RBC's 33% of revenue derived from aerospace/defense—its most profitable segment—is uniquely positioned to benefit.

Strategic Supply Chain Positioning: Sole-Source Power

RBC Bearings is not merely a supplier; it is a critical node in the aerospace value chain. Over 70% of its aerospace revenue comes from sole, single, or primary-sourced components, a rarity in an industry where commoditization often erodes margins. This sole-source positioning stems from RBC's deep integration with OEMs like Boeing, Airbus, and Lockheed Martin. Many of its bearings and engineered components are certified during the original aircraft design phase, locking in long-term exclusivity.

For example, RBC is the primary bearing supplier for key aircraft engines and guided weaponry systems, with product approval processes spanning six months to six years. This creates a high barrier to entry for competitors and ensures RBC's products are embedded in the lifecycle of critical aerospace assets.

Moreover, newly negotiated contracts with Boeing and Airbus include price increases to offset multi-year inflationary pressures. These adjustments, combined with RBC's proprietary design software and global manufacturing footprint, are fueling margin expansion. In fiscal 2025, the company's aerospace/defense segment delivered a 44.4% gross margin—a 1.4 percentage point improvement from 2024—and management expects this trend to continue as production volumes rise.

Margin Resilience: Operational Excellence in a Stressed Supply Chain

While aerospace manufacturers grapple with delays and rising costs, RBC Bearings has demonstrated remarkable operational agility. Its RBC Ops Management System—a lean manufacturing initiative—has driven plant utilization rates and synergies from the 2021 Dodge acquisition. The company's adjusted EBITDA margin hit 31.8% in fiscal 2025, up from 29.5% in 2023, despite headwinds like shipping bottlenecks and labor shortages.

This resilience is underpinned by RBC's focus on value-added manufacturing. Unlike commodity players, RBC's precision-engineered components command premium pricing and are less susceptible to cost erosion. Its debt reduction efforts (net leverage now at 1.7x) and $188.6 million investment in new capacity further position the company to scale profitably as aerospace demand accelerates.

Investment Case: Pricing Power in a Scarce Supply Chain

The aerospace recovery is a multiyear story, but RBC Bearings is already outpacing the broader industry. While many suppliers face margin compression due to supply chain chaos, RBC's sole-source contracts and pricing power are shielding it from the worst. With Boeing and Airbus planning to increase production rates by at least 15% in 2025, RBC is well-positioned to capture incremental demand.

Moreover, the company's 70% of plants operating at or above capacity necessitates disciplined capital allocation—a strength RBC has demonstrated through strategic acquisitions and automation. Its ability to invest in capacity while maintaining a strong balance sheet (with $10.01 in adjusted EPS for fiscal 2025) suggests a durable competitive edge.

For investors, RBC Bearings offers a compelling mix of secular growth (aging fleet, MRO expansion) and operational excellence. At current valuations, the stock trades at a discount to its historical gross margin multiples, suggesting upside as aerospace production normalizes.

Conclusion: A High-Conviction Buy

RBC Bearings is a rare aerospace supplier with pricing power, margin resilience, and a supply chain position that is both critical and defensible. As the industry navigates its recovery, RBC's ability to leverage sole-source contracts and operational discipline will drive outsized returns. With Boeing and Airbus poised to accelerate production, and the MRO market expanding at 2.7% annually, RBC Bearings is not just riding the recovery—it is leading it.

Investors seeking exposure to the aerospace renaissance should consider RBC Bearings as a core holding in their portfolios.