Solid Long Term Demand For Commercial Airplanes Will Drive Boeing’s Results

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The Boeing Company

Steadily growing global economy, increasing trade and liberalization, and an expanding global labor force are growing demand for air travel. Over the last few years, driven by these trends, global airline passenger traffic has risen strongly, and looking ahead Boeing forecasts global airline passenger traffic to rise by around 5% per year through the next 20 years. This growing airline passenger traffic in turn is forcing the global airline industry to expand its airplane fleet. Boeing (NYSE:BA) anticipates the global airplane fleet to rise from around 21,000 airplanes currently to over 42,000 airplanes by 2033. After accounting for airplanes that will retire during this period, the company forecasts that airplane makers will deliver 36,770 airplanes to airlines worldwide over the next two decades, up from around 19,000 airplanes that were delivered to airlines in the last two decades. [1] [2]

We figure this significant growth in global commercial airplane deliveries in the coming years will drive solid growth in Boeing’s results, as the company generates over 65% of its revenues from manufacture and sale of commercial airplanes.

Separately, Boeing has been releasing its outlook for the commercial airplane industry for the last many decades with reasonable accuracy. The high growth forecast by the company for global airplane deliveries and airplane fleet are also validated by Boeing’s own rising backlog. Boeing’s backlog for commercial airplanes has grown from 3,770 airplanes at the end of 2011 to over 5,500 airplanes at the end of July 2014. [3] [4] And, we figure as new orders continue to outpace deliveries, Boeing’s backlog will continue to expand in the near term. Such a trend can also be observed at Airbus. Rising backlogs at these two major airplane makers clearly indicate that global airplane deliveries in the coming years will be higher than that in the past.

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We currently have a stock price estimate of $136 for Boeing, around 5% ahead of its current market price.

See our complete analysis of Boeing here

Boeing’s Strong Portfolio Will Enable It To Bag A Large Share Of Global Airplane Deliveries

Boeing’s commercial airplane product portfolio is more extensive and better positioned, than Airbus’. Together, these two companies control the majority of the global commercial airplane market. The difference in the portfolios of these two airplane makers stands out the most in the wide-body segment, which includes airplanes that seat more than approximately 230 passengers. In this segment, Boeing offers more airplanes than Airbus. Starting with its 787-8 Dreamliner, which seats about 240 passengers in a typical three-class seating arrangement, Boeing offers various models of its 787 Dreamliner, 777 and 747 Intercontinental airplanes that comprehensively cover the entire wide-body segment. In comparison, Airbus with its A330, A350 and A380 models does not cover the entire wide-body segment as comprehensively. The A330 and A350 models from Airbus provide strong competition to Boeing’s 787 Dreamliners and the smallest 777X model, but Airbus is yet to produce a competitor to Boeing’s larger 777X, which seats approximately 410 passengers in a three-class cabin. Separately, even though Boeing does not have a competitor to Airbus’ double-decker A380, which seats approximately 560 passengers in a three-class cabin, we figure this gap in Boeing’s portfolio does not impact it significantly as market demand for this largest commercial airplane has not been strong.

Out of the 36,770 commercial airplanes forecast to be delivered to airlines over the next 20 years, around 8,600 are expected to be wide-body airplanes. [1] So, in this segment, Boeing will likely snatch a significant lead over Airbus due to its wider product portfolio. However, in the narrow-body airplane segment, Airbus and Boeing will likely be neck-to-neck, as there is little to choose between Boeing’s narrow-body 737 series and Airbus’ narrow-body A320 series.

Overall, on strength of its wide product portfolio, Boeing will bag a large share of future global commercial airplane deliveries, growing its results.

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Notes:
  1. Boeing’s long term market outlook released in July 2014, August 28 2014, www.boeing.com [] []
  2. UTC’s propulsion and aerospace systems presentation, March 13 2014, www.utc.com []
  3. Boeing Wraps up 2011 With Record-Breaking Order Announcements, 2012 Expected to be ‘Year of the 737 MAX, January 5 2012, www.boeing.com []
  4. Boeing’s unfilled orders through July 2014, August 28 2014, www.boeing.com []