Call it the pony-up period, or maybe the ante-in-for-income. Whatever way one refers to it, prices are rising in aerospace and defense, but few are turning away because of it.

It is a Goldilocks moment—acceptable price increases that are also slowing—and represents further good news for industry and another reason to believe that the mid-decade recovery remains on track.

OEM parts are trending higher with list prices up 8-13% on average given the long-lead times, Jefferies analysts led by Sheila Kahyaoglu told investor clients in April after attending Aviation Week’s MRO Americas conference. “Customers understand the inflationary environment and are willing to accept price in order to get parts sooner,” her team concluded.

While pricing likely peaked in 2022 when measured in year-over-year increases, 2023 pricing is expected to stay ahead of pre-pandemic increases, the analysts said. Though distasteful on the front end, this cash flow adds another driver of continued revenue growth across the sector, they stressed.

Perhaps the only surprise is just how normal it all seems now. In their latest industrywide supplier survey released in January, the Jefferies group found respondents were expecting a 4.1% increase in gross price among commercial OEMs in 2023, with a net price growth of 3.7%. Respondents further were expecting a 5.1% increase in gross price in commercial aftermarket pricing in 2023, with a net price uptick of 4.8%.

Analyst Ken Herbert of RBC Capital Markets, who also attended MRO Americas, told his clients after the show that forecasted price increases are holding. “In our conversations with distributors and OEMs, the announced 2023 price increases (generally similar to 2022) are sticking with airlines and MROs,” he said.

There are many reasons why the aerospace and defense sector may be willing to swallow price increases despite record cost spikes. For starters, demand for products is cresting across the board. From airliners to aftermarket and missiles to spacecraft, all end-markets are seen reaching new record production or business levels in the next few years.

Next is the fact that everyone saw this coming. The current price increases were long expected, especially as the slow-moving aerospace and defense industry finally catches up from the worst of the pandemic’s effects. Unlike in aftermarket pricing, which can be much more responsive to mark-to-market demand and supply, OEM pricing is often determined under annual contracts. But subtier suppliers usually have to source raw material and other expenses several months in advance of production. That means suppliers renewing contracts this year are at last getting their first opportunity to adjust to price inflation that actually started to take effect in late 2021. 

“As a result of this dynamic, there will be some catch-up for the OE [original equipment] suppliers in 2023, as 2022 started with relatively low inflation compared to today, although the rate of inflation going forward will continue to impact net price capture,” the analysts wrote after their January survey. “Many contracts are being structured with inflation escalators or index-based pricing that aims to provide relief for suppliers.”

Still, as mentioned before, parts pricing may already be set to fall from here. Analysts and executives are confident that 2022 saw the greatest annual increases, and while prices will continue to grow, they will likely do so at lower levels.

Underlying that expectation is new U.S. government data. The producer-price index, which the Wall Street Journal said generally reflects supply conditions across the economy, fell 0.5% in March from the prior month. That marks the largest monthly decrease since April 2020, the U.S. Labor Department said April 13.

Nevertheless, it is worth remembering that prices will continue to rise—and industry knows it—just at slower rates. According to Accenture’s Commercial Aerospace Insight Report released first to Aviation Week in April, 61% of polled executives expect stable raw material costs over the next six months. Longer term, 64% and 67% of executives predict raw material costs will increase over the next 12-and 24-month periods, respectively.

At the same time, 55% of executives expect labor-related production costs to be stable over the next six-months. Yet, 70% expect labor-related costs to rise during the next two years.

Similarly, 67% of executive respondents expect the costs of sub-systems or parts to remain stable over the next six-month period, with only 30% predicting an increase. But longer term, 73% predict cost increases over the next two years.

Accenture said that according to the most recent index on part prices and lead times, prices of less expensive parts have been the most volatile, with small elements, consumables and expendables rising 40% above late-2020 levels.

Goldilocks periods never last and someday this too shall pass. But for now, industry should enjoy its price gains while everyone seems willing to pay.