Boeing (BA) Raises 20-Year Jetliner Market Outlook By 3.6%

The world’s leading commercial aircraft maker, The Boeing Co. (NYSE:BA) , has raised the 20-year forecast for jetliner demand by 3.6% at the Paris Air Show. This projection was based on a promising Asian market and the growing need for the improvement of fuel-efficient, single-aisle airliners.

The Latest Forecast

Per its current outlook, the world will need 41,030 new planes, worth $6.1 trillion, between 2017 and 2036. This estimated figure is slightly above last year's projected demand of 39,620 jets, worth $5.9 trillion for the 2016–2035 timeframe. Of the total units, 43% of the demand will be for the replacement of older, less-efficient aircraft.

Boeing expects single-aisle jets to be the major driver behind demand growth, comprising 72% of the total projection. This translates into worldwide demand for 29,530 single-aisle jets, worth $3.2 trillion, over the next 20 years. This figure reflects 5% increase over last year's projection.

Competition in the Single-Aisle Space

The expected growth in the single-aisle airplane segment is largely owing to the global popularity of the low-cost carrier business model and the expansion of air service into emerging markets such as Asia, which is compelling airlines to accelerate the replacement of aged airplanes.

Notably, these single-aisle jets have been the main area of competition between Boeing and its arch rival, Airbus Group (PA:AIR) SE (OTC:EADSY) . Currently, these two aerospace behemoths are wooing the market with the updated versions of their popular single-aisle jets – Boeing’s new 737 MAX 10 against Airbus' new A321 neo.

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Trailing behind single-aisle jetliners are their large wide-body, twin-aisle counterparts. In this context, Boeing projects demand for 9,130 new planes in the 2017–2036 period. Even though the figure appears unimpressive compared to the earlier mentioned figure, the price of these planes is almost enough to compensate for the difference in volume. The company estimates that the total value of all wide-body planes (comprising small, medium or large) sold over the period will be $2.8 trillion compared with $3.2 trillion for the narrow-body variety. Meanwhile, regional jets will account for $110 billion in global sales.

As more airlines are shifting to small and medium/large wide-body airplanes like the 787 and 777X, the primary demand for very large airplanes going forward will be in the cargo market. It is to be noted that, the airplane manufacturer projects the necessity for 920 new production wide-body freighters over the period under consideration.

Passenger Traffic to Improve

Overall, Boeing anticipates the commercial fleet to be fueled by sustained 4.7% annual growth in commercial passenger traffic. About 39% of the total commercial demand is likely to come from the Asian markets, 21% from North America, 18% from Europe, and the balance from the rest of the world.

Deals Signed at the Ongoing Paris Airshow

Demand for Boeing’s commercial airplanes has been on the rise due to a steady increase in passenger and freight traffic. Recently, at the Paris Air Show, Boeing received a commitment from the Kuwait-based ALAFCO Aviation Lease and Finance Company for 20 737 MAX 8s, valued at $2.2 billion at current list prices. Additionally, the company has got commitment for 50 737 MAX 10 airplanes, valued at approximately $6.24 billion at list prices, from Lion Air Group.

We note that the aerospace behemoth signed a memorandum of understanding (MOU) with SpiceJet for 40 737 MAX airplanes, valued at $4.7 billion. Also, it signed another MOU with Tibet Financial Leasing for 20 737 MAX airplanes, valued at approximately $2.5 billion. It signed another MOU with BOC Aviation Limited for 10 737 MAX 10 airplanes, worth nearly $1.25 billion.

Apart from this, the company bagged an order from AerCap for 30 787-9 Dreamliners, worth $8.1 billion. Given the enormous commercial demand in the market, Boeing stands to witness significant traction, especially in the single-aisle market.

Outlook by Airbus

On the contrary, Airbus recently raised the 20-year forecast for jetliner demand by 6%. As per its outlook, the world will need more than 34,899 new planes, worth $5.3 trillion between 2017 and 2036. This anticipated number is pegged above last year's projected demand of 33,070 jets, worth $5.2 trillion, for the period of 2016–2035. Moreover, of the total units, 40% of the demand will be for the replacement of older, less-efficient aircraft.

Airbus expects single-aisle jets to be the major driver behind demand growth, comprising more than 70% of the total projection. This translates into worldwide demand for 24,810 single-aisle jets, worth $2.4 trillion in the next 20 years.

Airbus projects demand for 10,100 new planes in the large wide-body, twin-aisle category in the 2017–2036 period. We note that the company lowered its projection for air traffic growth to 4.4% a year from 4.5% as it took a more cautious view on mature markets such as North America.

Other Players in the Space

Undoubtedly, Boeing and Airbus dominate the commercial aerospace manufacturing market as major airlines worldwide uses their airplanes. Nevertheless, Canada’s Bombardier Inc. and Brazil’s Embraer S.A. (NYSE:ERJ) are also in the commercial race although their presence in the market is negligible compared with the former two.

Embraer continues to lead the 70- to 130-seat commercial jet market. According to its 20-year Market Outlook, released in 2016, Embraer expected total market deliveries of 6,400 jets that include 2,300 units in the 70- to 90-seat segment, and 4,100 units in the 90- to 130-seat segment by 2035.

The 70- to 130-seat jet world fleet-in-service will increase from 2,670 aircraft in 2015 to 6,690 by 2035, thereby making it the fastest growing aircraft seat segments among all. Replacement of ageing aircraft will represent about 37% of new deliveries, while 63% of deliveries will represent market growth.

Price Movement

Share price of Boeing has surged 50.8% over the last 12 months, outperforming the Zacks categorized Aerospace–Defense industry’s gain of 28.1%. This could be because the company’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases as well as earnings accretive acquisitions. The stock’s performance is in line with that of General Dynamics Corp. (NYSE:GD) , which also surpassed the industry mark.

Zacks Rank

Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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