Boeing Provides 20-Year Outlook - Analyst Blog

Defense and Aerospace manufacturer Boeing Company (BA) released its 2010 Current Market Outlook (CMO) estimating a $3.6 trillion market for new commercial airplanes in the next 20 years. Boeing’s projection of growth is based on the recovery witnessed in world economies and strong demand for fleet addition and replacement.

 

Boeing expects global new commercial and freighter plane orders to reach roughly 30,900 by 2029. This is slightly above last year's projected demand of 29,000 aircraft worth $3.2 trillion for 2009-2028.

 

Boeing expects the single-aisle airplanes to be the major driver behind the demand growth, accounting for about 69% of the estimated airplane deliveries in 2029 and 47% of total value of the deliveries. This depicts a worldwide demand for 21,160 single-aisle jets worth $1.7 trillion in 2029.

 

This growth in the single-aisle airplane segment is mainly due to the popularity of the low-cost carriers business model throughout the world; expansion of air service in emerging markets such as India, China and Southeast Asia; and continuing instability of fuel prices, which is compelling airlines to accelerate replacement of older airplanes.

 

The twin-aisle market, which is the fastest growing segment of the market, is expected to deliver roughly 23% of projected units and 45% of delivery in dollars. As per the report, 7,100 twin-aisle planes such as the 777, 787 and Airbus' A330-340 family, worth $1.6 trillion will be needed worldwide in 2029.

 

Further, the company predicts a demand for 720 large aircraft such as Boeing's 747 and Airbus' superjumbo A380, worth $220 billion, and just 1,920 regional jets worth $60 billion, through 2029.

 

 

Boeing expects the world economy to continue to rebound, growing above the long-term trend in 2010. Boeing pointed out that airlines will see a rebound in passenger and cargo traffic revenue this year and should return to profitability in 2011. However, fuel prices remain volatile.

 

Furthermore, the company expects passenger traffic to grow 5.3% annually over the long-term, slightly above the roughly 5% average rate over the past 30 years. This is driven by economic growth from regions with diverse airplane needs. Air cargo traffic is expected to grow nearly 5.9% annually.

 

 

Over the next 20 years, Boeing predicts 77% of demand for new airplanes to come from outside North America, with about 34% of deliveries going to the Asia Pacific region.

 

Boeing noted that about one-third of all airline traffic touches the Asia-Pacific region today, which drives the forecast for roughly 43% of the traffic in 2029 to be from this region. Also, Boeing expects about 40% of the total 2029 demand for the twin-aisle airplanes to come from the Asia-Pacific region.

 

Another region which supports growth in air traffic is the Middle East, the home to several highly competitive airlines. Airlines in the Middle East have been growing rapidly in recent years by taking advantage of geography, demographics, airplane technology and well-coordinated growth and investment plans.

 

Moreover, Boeing continues to see substantial recovery in demand from the North American and European markets for replacement airplanes as they retire aging less-efficient jets. However, Europe's recovery is expected to be hurt by the recent strikes at some airlines and the debt crisis.

 

However, Boeing’s forecast predicts that the greatest demand for new aircraft, by market value, will come from the United States, followed by China and Middle East.

 

 

Boeing states that airlines have been able to manage their way through the economic downturn fairly well by keeping costs down. Given the robust demand outlook for the next 20 years, the airlines are all set to boost profits by expanding their operations. This paves the way for the rise in demand for aircraft from manufacturers like, Boeing and Airbus.

 

As a result, Boeing has increased its aircraft production rate for 2012 – boosting the production of its 737 jets to 35 planes and also increasing the production of its 777 and 747 wide-body aircraft earlier than planned.

 

The company is also building a temporary surge production line at its Everett, Washington, assembly plant for its new and long-delayed 787 jetliner. That's in addition to its existing 787 line at Everett and a 787 plant being built in Charleston, South Carolina.

 

 

We believe Boeing is among the best-positioned companies in its sector due to its balanced exposure to commercial aircraft and defense equipment. Further, the company is well positioned to benefit from the gradual recovery of the global economy and improving freight and passenger traffic. However, we believe the above positives are already priced in the current valuation, leaving very little room for any upside in the near-term.

 

The major competitors of the company are General Dynamics Corp. (GD), Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC). We maintain our Neutral rating on the Zacks #3 Rank (Hold) stock.