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The hiring of Albaugh, who most recently served as chief executive and president of Boeing Commercial Airplanes, could help put Blackstone on the map as a major investor in the sector, which has been led by rival private equity firm Carlyle Group LP (CG.O).
Blackstone said in a statement on Thursday that Albaugh, as a senior adviser to the firm, will also advise other businesses and clients across Blackstone's platforms.
Albaugh, 62, retired from Boeing in October. In a 37-year career there, he also headed Boeing's defense and space businesses before moving to commercial airplanes.
The New York-based alternative asset manager is building its strength in the industry at a time when defense companies are cutting capacity in response to budget cuts and sequestration, and commercial aerospace parts suppliers are trying to keep up with record production of jets by Boeing and Airbus.
Private equity companies can help the transformation, and Albaugh's experience in defense, commercial airplanes and space could help Blackstone identify opportunities in all these industry sectors, said Tom Captain, vice chairman at Deloitte, focused on aerospace and defense.
"The fact that a very large private equity company is hiring an aerospace and defense veteran speaks volumes as to what opportunities there may be in investing in the aerospace industry," Captain said.
"Clearly the guys at Carlyle are incredibly astute and successful. They have lots of experience in the sector," said Ken Herbert, analyst at Imperial Capital in San Francisco.
"Blackstone wasn't as strong. This puts them in the game."
Among the private equity firms active in the aerospace and defense sector, Carlyle is seen as a formidable competitor.
It owned Vought Aircraft Industries Inc, which made parts for the Boeing 787 Dreamliner, and invested in other aerospace companies that include Aviall Inc, Avio SpA and Wesco Aircraft Holdings. Its aerospace investment activities have been spearheaded by Adam Palmer, a former Lehman Brothers investment banker who has been with Carlyle since 1996.
In 2009, Boeing agreed to buy the Vought facility in South Carolina where Dreamliner fuselage sections were made. That facility now houses Boeing's second production line for the 787.
Reporting by Soyoung Kim and Alwyn Scott in New York, additional reporting by Greg Roumeliotis