Ashot: Aerospace backlog depth versus margin quality
Ashot's aerospace activity has real commercial depth, but 2025 showed that most of it still sits in long-dated framework demand rather than in current economics. The key question is no longer whether demand exists, but whether that scarcity reaches the margin line.
Commercial depth is real, but it still does not equal margin quality
The main article argued that Ashot enters 2026 with a broad order wave, but that the real test is conversion into throughput, cash, and profit. This continuation isolates aerospace because it is the segment that connects Ashot to civil and military aerospace markets outside the sharp local defense surge, and it is also where 2025 exposed the clearest tension between commercial depth and current economics.
This is the core point: aerospace has genuine long-dated depth, but most of it is still non-binding, a large part sits far out in time, and current operating performance already moved backward. As of December 31, 2025, the segment's total order base, including expected orders, stood at NIS 910.8 million, but only NIS 150.7 million was binding backlog. NIS 760.0 million, about 83.4% of the picture, was expected orders under framework agreements. More than that, NIS 515.6 million, about 56.6% of the total base, sits in 2029 and beyond, and that layer contains no binding backlog at all.
That matters because aerospace is supposed to be Ashot's diversification engine, yet in 2025 it actually lost weight in the reported mix. Its share of external revenue fell to 22.9% from 27.2% in 2024, revenue declined by 2.1%, gross profit fell by 17.6%, and operating profit fell by 20.3%. In other words, there is a real difference between a market that gives Ashot demand visibility and a market that already gives it pricing power and stable profitability.
This gap also explains why the decline in binding backlog at the end of 2025 does not necessarily mean demand softened, but it does mean revenue and margin are still not protected enough. Binding backlog fell to NIS 150.7 million from NIS 172.2 million, and the company itself explains that the decline was mainly driven by delayed new orders that were actually received only in the first quarter of 2026, as well as a roughly 12.5% drop in the dollar exchange rate during the period. That is exactly the point: even when the market backdrop is favorable, the translation into reported backlog and reported economics remains sensitive to timing and currency.
What actually sits inside the aerospace depth
The commercial depth is not fictional. On the contrary, it is anchored in several material framework agreements. The remaining estimated value of the four material aerospace agreements stood near the report date at USD 266.8 million. The largest agreement, for electro-mechanical systems and stabilizers, carries USD 145.0 million through 2026 to 2032. It is followed by a jet engine shafts agreement worth USD 41.9 million through 2035, an Airbus A350 flap-opening assemblies agreement worth USD 77.3 million through the end of the aircraft life, and a smaller helicopter rotor balancing weights agreement worth USD 2.6 million through 2026 to 2027.
| Agreement | Estimated remaining value | Horizon | What really matters |
|---|---|---|---|
| Electro-mechanical systems and stabilizers | USD 145.0 million | 2026 to 2032 | The largest agreement, but the value depends on orders the customer itself receives |
| Jet engine shafts | USD 41.9 million | 2026 to 2035 | No minimum order commitment, with annual pricing set in advance and an update formula |
| Airbus A350 flap-opening assemblies | USD 77.3 million | Through aircraft life | Very long depth, but conversion still depends on the customer's own order chain |
| Helicopter rotor balancing weights | USD 2.6 million | 2026 to 2027 | A supporting agreement, not a central engine |
The positive point is that the investor presentation describes an aerospace market that is hungry for high-quality suppliers. Management highlights supply-chain disruption, quality and delivery problems at other suppliers, financial stress that is leading to factory and supplier closures, and very high demand in both civil and military aerospace. The same slide also stresses that in 2025 the company signed two major agreements with a combined value of about USD 190 million. Put differently, Ashot operates in a market that rewards reliability and availability, which clearly helps explain why agreements keep accumulating.
But that is not the same question as backlog quality. The company explicitly states that the expected orders are based on customer forecasts that are not binding, and that it prepares production and procurement on that basis. In addition, more than 95% of the segment's binding backlog is concentrated in four large customers. So anyone who looks only at the headline number, NIS 910.8 million, sees depth. Anyone who separates the layers sees that only about 16.5% of the picture is already firm, and that even this firm layer remains highly concentrated.
Where 2025 exposed the margin problem
The big weakness of 2025 is that the commercial opportunity still did not translate into enough pricing power. Aerospace and complex assemblies closed the year with revenue of NIS 104.9 million, versus NIS 107.2 million in 2024. But the modest revenue decline does not tell the full story. Gross profit fell to NIS 18.5 million from NIS 22.4 million, and gross margin compressed to 17.6% from 20.9%. Operating profit fell to NIS 12.2 million from NIS 15.4 million.
The company's explanation for that erosion is fairly direct. In the directors' report it says the drop in aerospace segment gross margin came from the weaker exchange rate, and also from the fact that in 2024 it received a one-time compensation tied to accelerated deliveries requested by customers. That combination matters. Part of the gap is currency, and part of it is a tougher comparison base. In other words, 2025 not only faced fresh pressure, it also lost a one-off tailwind that had supported the prior year.
Above that sits the more structural pressure. The company states that in recent years aircraft manufacturers have applied persistent pressure on subcontractors to reduce prices despite rising product complexity. That is a key point, because it prevents the reader from assuming that a shortage of quality suppliers automatically rolls into better margins. The market may be looking for reliable suppliers, but the OEM still presses on price.
The currency-risk section also explains why this picture is especially sensitive. When customer contracts are dollar denominated and the dollar weakens against the shekel, local labor costs become more expensive in dollar terms and hurt profitability. On the other hand, a meaningful share of procurement costs is dollar based, so a weaker dollar also eases part of the cost base. The effect is not one-directional, but the report explicitly says a falling dollar can pressure profitability, and that is what happened in practice during 2025.
There is another important nuance here. In the jet engine shafts agreement, pricing is fixed one year in advance and includes an update formula. That is a reasonable mechanism for a long-term relationship, but it also suggests that the ability to pass through cost or FX moves quickly is not unlimited. So even in a high-demand environment, current economics can still look weaker than the commercial narrative.
What has to change for the thesis to improve
If aerospace is going to carry more weight in Ashot's story, more headlines about demand and framework agreements will not be enough. The first test is conversion quality: a larger part of the depth needs to move from expected orders into binding backlog, especially inside the 2026 to 2028 window rather than mainly in 2029 and beyond.
The second test is profit quality: if Ashot is genuinely benefiting from a global shortage of quality suppliers, that should start to show up at least in a stabilization of margin erosion, and ideally in a renewed improvement in gross margin. Otherwise the story remains one in which the market wants Ashot, but still manages to pressure it on price.
The third test is quality of diversification: as long as more than 95% of binding aerospace backlog remains concentrated in four customers, the segment is still a relatively concentrated diversification engine. That does not eliminate the opportunity, but it does cap its quality.
Bottom line
Ashot's aerospace activity has real commercial depth, and the investor presentation makes clear that the company is operating in a market that is looking for reliable suppliers and struggling to find them. That is a genuine strength, not a slogan.
But 2025 also showed that this depth is still not high enough quality to be treated as a clean profit engine. Most of the picture still rests on expected orders rather than firm customer commitments, a large portion sits in distant years, and current profitability already weakened under a softer dollar and customer price pressure. So the next important question is not whether aerospace demand exists. The question is whether Ashot can convert that demand into binding backlog, better diversification, and margins that behave like a shortage market rather than like a subcontractor market that keeps most of the work and only part of the power.
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