Key Takeaways
- • Private equity deal activity in aerospace and defense has surged dramatically over the past five years, with 2025 marking a record-breaking year for the sector, driven by three primary catalysts: rising commercial aviation passenger numbers, geopolitical volatility increasing defense spending, and technological breakthroughs across the industry.
- • The aerospace and defense sector is experiencing sustained dealmaking momentum supported by structural tailwinds including recovery in business travel demand and elevated geopolitical tensions that bolster government defense procurement budgets.
- • Q1 2026 data from KPMG indicates that while exits and IPO activity remain subdued, deal values have stayed robust particularly across the US and EMEA regions, with private equity demonstrating resilience for large, high-quality assets despite macroeconomic volatility and renewed geopolitical conflicts.
- • The bifurcated nature of the private equity market is evident in aerospace and defense, where the highest-quality, strategically relevant assets with operational scale continue to attract significant capital even as broader market sentiment experiences cyclical pullbacks.
Summary
The aerospace and defense sector is experiencing an exceptional period of private equity activity in 2025, capping a five-year uptrend in dealmaking. The surge reflects a confluence of structural market drivers reshaping the investment landscape for alternative asset managers focused on the space.
Rising passenger volumes in commercial aviation represent the first major tailwind. As business travel demand has normalized and expanded beyond pre-pandemic levels, airlines and their supply chains face sustained capital requirements for fleet modernization, maintenance facilities, and technology upgrades—creating attractive acquisition and consolidation opportunities for private equity sponsors seeking operational assets with predictable cash flows.
Geopolitical volatility constitutes the second significant catalyst. Heightened international tensions and regional conflicts have prompted sustained increases in government defense spending across NATO allies, the United States, and other strategic powers. This environment creates durable demand for defense contractors, aerospace suppliers, and specialized manufacturing platforms—sectors where private equity can apply operational improvements and leverage stable, contract-backed revenue streams.
Technological advancement forms the third pillar. Breakthroughs in avionics, propulsion systems, materials science, and digital integration are generating opportunities for both platform acquisitions and bolt-on combinations, allowing PE firms to consolidate fragmented supply chains and modernize legacy businesses.
Forward-looking data from KPMG's Q1 2026 Pulse of Private Equity report suggests this momentum persists, albeit with selective deployment. While exit activity and IPO markets remained constrained due to macroeconomic volatility and renewed geopolitical conflicts, deal values remained robust across the US and EMEA, particularly for large, high-quality assets. This bifurcation underscores that institutional capital continues flowing toward strategically sound, operationally resilient aerospace and defense targets, even as market sentiment faces periodic pressure.
Rising passenger volumes in commercial aviation represent the first major tailwind. As business travel demand has normalized and expanded beyond pre-pandemic levels, airlines and their supply chains face sustained capital requirements for fleet modernization, maintenance facilities, and technology upgrades—creating attractive acquisition and consolidation opportunities for private equity sponsors seeking operational assets with predictable cash flows.
Geopolitical volatility constitutes the second significant catalyst. Heightened international tensions and regional conflicts have prompted sustained increases in government defense spending across NATO allies, the United States, and other strategic powers. This environment creates durable demand for defense contractors, aerospace suppliers, and specialized manufacturing platforms—sectors where private equity can apply operational improvements and leverage stable, contract-backed revenue streams.
Technological advancement forms the third pillar. Breakthroughs in avionics, propulsion systems, materials science, and digital integration are generating opportunities for both platform acquisitions and bolt-on combinations, allowing PE firms to consolidate fragmented supply chains and modernize legacy businesses.
Forward-looking data from KPMG's Q1 2026 Pulse of Private Equity report suggests this momentum persists, albeit with selective deployment. While exit activity and IPO markets remained constrained due to macroeconomic volatility and renewed geopolitical conflicts, deal values remained robust across the US and EMEA, particularly for large, high-quality assets. This bifurcation underscores that institutional capital continues flowing toward strategically sound, operationally resilient aerospace and defense targets, even as market sentiment faces periodic pressure.
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