Flying High or Grounded? Capitalizing on Aerospace Realignments Amid US-China Trade Tensions

The US-China trade truce of June 2025 has reignited hope for stability in the aerospace sector, yet the path forward remains fraught with geopolitical volatility and supply chain complexities. At the center of this dynamic is General Electric (GE), whose resumed engine shipments to China's Commercial Aircraft Corporation (COMAC) for its C919 jetliner have become a microcosm of the sector's opportunities—and risks. For investors, this presents a high-reward, high-risk scenario requiring nuanced analysis of certification timelines, trade policy shifts, and supply chain dependencies.

The Catalyst: GE's COMAC Deal and the C919's Lifeline

GE's recent approval to resume exports of its CFM International Leap-1C engines to COMAC marks a pivotal moment. These engines power the C919, China's first domestically produced narrow-body jet, which entered limited service in 2023. The truce's easing of rare earth export controls—critical for engine manufacturing—has temporarily alleviated supply chain bottlenecks.

The C919's success hinges on certification milestones:
- EASA certification: Delayed until 2028–2030 due to technical and geopolitical hurdles (EASA's 3–6 year timeline).
- FAA certification: Unlikely before 2027, given unresolved espionage concerns and US sanctions on Chinese tech.

Without these approvals, the C919's global market access—and by extension, demand for GE engines—will remain constrained. However, domestic orders from Chinese airlines (e.g., Air China, China Eastern) provide a near-term revenue buffer.

Investment Opportunities: Engine Suppliers and Avionics Firms

The truce's stabilization of rare earth supplies and the C919's production ramp-up favor engine manufacturers like GE and avionics firms with China exposure:

1. Engine Suppliers (GE, Safran, Rolls-Royce):
2. GE: Benefits directly from C919 production but faces headwinds from China's push to develop its own CJ-1000A engine. Monitor Q3 2025 engine shipment data for production cadence.

3. Safran (FR:SAF): A key partner in Leap-1C production; its stock has outperformed peers by 15% YTD due to C919 demand.

4. Avionics Firms (Thales, Collins Aerospace):

5. Thales (FR:HO): Gained 20% in 2025 as COMAC diversifies avionics suppliers post-US sanctions. Its partnership with COMAC on flight control systems is a key growth lever.
6. Collins Aerospace (US:COLL): Risks include US export controls on its systems (e.g., glass cockpits). Diversification into European and Russian suppliers (e.g., KRET) is a mitigant.

Risks: Geopolitical Whiplash and Certification Delays

The truce's fragility looms large. Key risks include:
- Trade Policy Reversals: The July 9 deadline for US-China tariff negotiations could reignite tensions if unresolved (e.g., rare earths as a bargaining chip).
- C919 Certification Milestones: Delays beyond 2026 could force COMAC to prioritize domestic sales, reducing engine demand.
- Supply Chain Bifurcation: A split into Western and Chinese supply chains could raise costs for firms reliant on cross-border partnerships.

Investment Strategy: Targeted Exposure, Mitigate Risks

Buy:
- GE: For its near-term C919 revenue, but set a stop-loss below $100/share pending certification clarity.
- Thales: Long-term beneficiary of avionics diversification; target a 5% dividend yield.

Avoid:
- Pure-play US avionics firms (e.g., Honeywell) until trade policies stabilize.

Hedge:
- Use options on EASA/FAA certification deadlines (e.g., call options expiring in Q1 2026).
- Monitor rare earth trade data—sustained exports above 20,000 tons/month signal truce durability.

Conclusion: A Delicate Balancing Act

The aerospace sector's recovery hinges on whether the US-China truce can outlast its geopolitical headwinds. Investors should prioritize firms with diversified supply chains and exposure to COMAC's production ramp-up, while hedging against certification delays. The C919's path to global certification is a litmus test for the sector's health—and a key metric for positioning portfolios in this volatile landscape.

Fly cautiously, but fly forward.