Boeing: China Aircraft Demand To Rise, Market To Cross $1T

The world’s leading commercial aircraft maker The Boeing Co. (NYSE:BA) has released its China Current Market Outlook, which estimates a $1.03 trillion market in the country for new commercial airplanes over the next 20 years. If Boeing’s projection is realized, China would be the first trillion-dollar aviation market in the world.

New Forecast

Per the latest outlook, China is going to need 6,810 new planes between 2016 and 2035. This reflects a 7.6% increase over last year's projected demand of 6,330 jets, worth $950 billion, for the 2015–2034 period.

Boeing expects single-aisle jets to be the biggest demand driver, comprising 75% of the total projection. This translates into demand for 5,110 single-aisle jets, worth $535 billion, in the next 20 years.

Factors Driving Demand

According to Randy Tinseth, vice president of Marketing, Boeing Commercial Airplanes, China is transitioning into a consumer-based economy, in which economic development will depend largely on the aviation market, given that travel and transportation are the key industries of the nation.

Tinseth also stated that China’s backlog proves the popularity of the new 737 MAX 8 and the current Next-Generation 737-800 in the nation’s single-aisle market. The single-aisle aircraft will account of nearly 52% of the entire Chinese demand.

The growth of single-aisle airplane segment can be attributed primarily to the popularity of the low-cost carrier business model and the expansion of air services into emerging markets such as China and Asia.

Other Aircraft Categories

In the large wide-body, twin-aisle category, Boeing projects demand for 1,560 new planes in the 2016–2035 period. This figure demonstrates the shift in demand from the large aircraft to efficient small and medium wide-body airplanes.

Boeing estimates the total value of all wide-body planes (comprising small, medium or large) sold over the period to be $480 billion. Meanwhile, regional jets will account for $10 billion.

Increase in Passenger & Cargo Traffic

Overall, Boeing anticipates 6.4% annual growth in commercial passenger traffic. The Chicago-based aerospace manufacturer believes due to growing Chinese e-commerce business air cargo will become a key growth driver for the aviation market of China. According to the company, by the end of the next 20 years, the world will need 180 new freighters and 410 converted freighters.

China’s Standing in Global Scale

At present, China's single-aisle fleet accounts for nearly 18% of all the global single-aisle aircraft in operation, while its wide-body fleet comprises 5% of the world’s wide-body segment.

Global Market Outlook

In July, Boeing provided its global outlook, wherein the global requirement was anticipated to be 39,620 new planes, worth $5.9 trillion, between 2016 and 2035. Single-aisle jets were expected to be the biggest demand catalyst, comprising 71% of the total projection. Worldwide demand for 28,140 single-aisle jets, worth $3.0 trillion, has been projected for the next 20 years.

Overall, Boeing anticipates the commercial fleet to double over the next two decades to 45,240 airplanes by the end of 2035, fueled by sustained 4.8% annual growth in commercial passenger traffic. About 40% of the total commercial demand is likely come from the Asian markets, another 40% from Europe and North America, and the balance from the rest of the world.

Boeing – A Major Player

Boeing jets are the foundation of China’s air travel and cargo industry — of the total commercial jetliners operating in China, over 50% are Boeing’s. We believe that the company will be able to nab a major chunk of the Chinese order due to the fuel-efficient high-quality aircraft it produces.

Note that demand for Boeing’s commercial airplanes is already on the rise due to steady growth in passenger and freight traffic. It is the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries. Its revenue exposure is spread across more than 90 countries. The company alo plans to increase the production rate of its popular models like the 737 and 787-Dreamliner among others.

During the second quarter, Boeing won net orders for 152 planes, its backlog reaching 5,700 worth a total $417 billion.

Zacks Rank & Key Picks

Boeing currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the aerospace and defense space include Engility Holdings, Inc. (NYSE:EGL) , General Dynamics Corp. (NYSE:GD) and Leidos Holdings, Inc. (NYSE:LDOS) . While Engility Holdings sports a Zacks Rank #1 (Strong Buy), both General Dynamics and Leidos carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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