Honeywell Aerospace: The Crown Jewel Cuts Loose

"Spin-offs have a terrific, terrific record. When companies get spun off, something seems to happen to them. They get better run — even though they were well run before."

– Peter Lynch

Spin-offs.

You remember our view on them. If you don’t, go back and read it — then watch this one closely.

Why the obsession? Because some of the greatest businesses of our era walked in through that exact door (chart 1).

ASML as a spin-out from Dutch electronics conglomerate Philips and ASM International. Ferrari was once buried inside Fiat Chrysler — spun off in 2016, and went on to become one of the great luxury compounders in the world. PayPal was a division of eBay until 2015. Zoetis, Pfizer’s quiet little animal-health unit, became the largest animal-health company on the planet after its 2013 spin — outrunning Pfizer itself. And closer to home, Givaudan, the silent giant of flavours and fragrances we’ve written about, was cut loose by Roche in 2000. Accelleron— ABB’s turbocharger jewel — has been a quiet Swiss star since 2022.

A pattern emerges. The unwanted child, freed from the conglomerate, frequently outgrows the parent. Lynch saw it decades ago: something happens to these businesses when they’re finally allowed to stand alone.

Now another big one is coming.

Honeywell — the 140-year-old American conglomerate, the original “Gemischtwarenladen” that builds everything from thermostats to jet engines — is splitting into three. The specialty-chemicals arm, Solstice Advanced Materials, already left home in October 2025. What remains becomes Honeywell Technologies, the automation business.

But we’re not here for the leftovers.

We’re here for the crown jewel. The second spin-off. The one that trades for the very first time this coming Monday, June 29.

Honeywell Aerospace.

Chart 1: The spin-off hall of fame — ASML, Ferrari, PayPal, Zoetis, Givaudan, Accelleron vs. their former parents

Aerospace: The Most Beautiful Industry in the World

A confession: aerospace might be my favourite industry on Earth. Not for the romance of flight — for the economics.

Think about what it takes to sell a single part for a jet engine.

You need decades of engineering heritage. You need certifications from regulators who can ground your entire product line with one signature. You need to be designed onto a platform — a 737, an A320 — that will then fly for thirty years. And once you’re on that platform, you are almost impossible to remove, because re-certifying a rival’s replacement part costs more than it could ever save. Consider the math: an auxiliary power unit runs a few hundred thousand dollars to a million; the narrow-body jet it sits inside costs around $100 million. The part is a rounding error on the plane — yet specified into the design, performing a life-saving function. Too cheap to bother switching. Too critical to ever risk it.

This is the opposite of a free market. It is a fortress.

The result is one of the most beautiful oligopoly structures in all of business — a handful of players, sky-high barriers to entry, and customers who literally cannot shop around. The names we admire in it are no accident: GE Aerospace and Safran in engines, HEICO and TransDigm in parts, Airbus in the sky itself. These aren’t businesses you trade in and out of. They’re the kind you hold for a very long time.

Then there’s the part nobody talks about: the aftermarket.

When a manufacturer sells a jet engine, it often does so at a thin margin — sometimes a loss. The real money arrives later, across the decades the engine spends in service, devouring spare parts and mandatory overhauls at rich margins. It’s the razor-and-blade model, except the razor lasts thirty years and the blades are required by law. Nearly half of Honeywell Aerospace’s revenue comes from exactly this: the high-margin Commercial Aftermarket (chart 2).

Now layer on the tailwinds.

Global air travel keeps compounding — projected to grow around 4% a year through 2030, with aircraft deliveries rising about 7%. Airlines, unable to get enough new jets from a backed-up Boeing and Airbus, are flying their old planes longer, which means more maintenance, more parts, more aftermarket. In one recent quarter alone, commercial aerospace aftermarket demand grew 19% year over year. The backlog for new aircraft now stretches well into the 2030s — order a narrow-body today, and the earliest it could reach you is the late 2030s – no joke. International defense spending is climbing around 7% a year. All told, the aerospace market is projected to nearly double, to $662 billion, by 2033.

A fortress, with a moat, on a rising tide.

That’s the aerospace industry.

Now the company.

Chart 2: The aerospace aftermarket — decades of high-margin parts and overhauls per platform

Honeywell Aerospace owns 90% of the Sky

Here’s the number that stops you cold: roughly 90% of the world’s aircraft carry Honeywell Aerospace technology somewhere on board. Around 80% of satellites in orbit contain its components.

Auxiliary power units. Cockpit avionics. Flight-control systems. Sensors. Hydraulics. The unglamorous, mission-critical hardware that aircraft legally cannot fly without. Honeywell doesn’t build the whole jet — it builds the nervous system inside it, and it has been embedded in the global fleet for generations (chart 3).

Fun fact: that high-pitched whine you hear as you board, before the main engines spin up? That’s almost always a Honeywell auxiliary power unit (APU, rear-center engine — see cover), breathing life into the aircraft.

You want more?

Honeywell didn’t just win the APU market — it invented it, launching the first one, the GTCP85, in the 1950s. More than seventy years later, it still dominates. This is a company with a 100-year lineage of firsts: the first aircraft autopilot in 1914, the critical guidance devices that helped land Apollo 11 in 1969, the power-and-thermal system on the F-35. The firm that helped put men on the moon is about to land on the Nasdaq.

And you?

You’ve been its customer your whole life — you just could never buy the stock.

This is a $17.4 billion-revenue business, an installed base that takes a century to build and cannot be bought with money. It sits on roughly $19 billion of backlog and has booked over $90 billion in new contract wins in just the last four years. Its Defense & Space arm — 41% of sales — just got stronger with the $1.9 billion CAES acquisition, precisely as Western defense spending enters a multi-year boom. And here is the moat made visible: of its $1.8 billion annual R&D budget, around 60% is funded by customers. Read that again — its clients pay it to build the very technology that locks them in.

The fundamentals, frankly, we already know. The «Good Story» almost tells itself: a dominant position, oligopoly economics, recurring aftermarket cash, structural tailwinds, and a fresh management team in Phoenix newly free to pour every dollar into aerospace alone.

So what do we actually need to watch?

Because a wonderful business and a wonderful investment are not the same thing. And a spin-off — however gleaming the jewel — carries a catch that has nothing to do with the company itself.

It hides in the one place we haven't looked yet.

Chart 3: Honeywell Aerospace revenue mix — Electronic Solutions 39%, Engines & Power Systems 31%, Control Systems 30%

Honeywell Aerospace’s “Good Chart” That Doesn’t Exist Yet

Here's the strange thing about writing up Honeywell Aerospace as an investment.

There is no chart.

On Monday, HONA begins trading with no history, no standalone track record, no decade of higher highs to point to. The «Good Chart» we always demand — the one that confirms the market agrees with the story — simply doesn't exist yet. It will be born, live, in front of us.

And the main point to watch?

For much of the last two decades, Honeywell's organic sales volume barely grew — earnings came from price hikes, buybacks, and margin, not from selling meaningfully more. But here is the tell, and it cuts both ways: while the conglomerate stalled, the jewel inside it quietly compounded.

Aerospace grew segment sales from $11.5 billion in 2020 to $17.5 billion in 2025 — a 10% annual clip — and grew organically 12% in its most recent year. Aerospace wasn't just one engine among many. It was the engine carrying a company whose other engines had stalled. So, the real question isn't whether aerospace is wonderful. It is. It's whether a crown jewel, finally set free to keep every franc it earns, can compound fast enough to reward the patient.

But we are not flying blind. We have the parent's long aerospace record. We have the peers — GE Aerospace, Safran, HEICO, TransDigm — whose charts are a thing of beauty: relentless, boring, upward compounders. We have a deep order book and margins turning the corner.

So, the story is here. The fortress is real. The jewel is genuine.

But a “Good Story” needs a “Good Chart” — and this one hasn't drawn its first line. So, will the market price the crown jewel correctly from day one? Or is there a better moment ahead?

On Monday, the chart starts drawing itself. And we'll be watching every single stroke.

Fly safe, child. You're on your own journey now.

Honeywell Aerospace, ready for departure!

Chart 4: Honeywell (HON) and first spin-off Solstice Advanced Materials (SOLS)