How Will Boeing Gain Market Share?

Boeing (NYSE:BA) A number of changes are expected in 2019 that we believe will lead to Boeing gaining market share, which we believe will lead to improved earnings during the coming quarter. We analyze those factors in this article.

Macro Analysis for Boeing, and its Shift Away from North America /Europe to Asia-Pacific: 

Boeing will increasingly see a shift away from American, and European customers, to APAC customers, during the current year, and into the next decade. Furthermore, this trend will increasingly become a common theme for Boeing’s earnings going forward, with China making up the largest portion of airline sales. Therefore, with China showing signs of an economic slowdown, Boeing’s deliveries in the region may witness a slowdown in 2019, the extent to which this affects Boeing’s earnings depends largely on Chinese consumers and their travel trends. Europe has also showed early signs of a slowdown with Italy and Germany both showing early recessionary signals. But with the load factor being historically high we expect that Boeing, regardless of macro conditions, will continue to see a robust delivery schedule.

We currently have a price estimate of $441 per share, which is 5%  higher than the market price. You can use our interactive dashboard Can Boeing’s Growth Continue?  to modify key drivers and visualize the impact on Boeing’s price estimate.   In addition, here is more Industrials data.

Key Competitor Analysis:

Commercial Airliners:

Airbus is the other big name in the commercial airline space, both Boeing and Airbus each own about 43% and 45% of the global commercial airline industry, respectively, by revenue, with the rest of the market share owned mainly by Bombardier and Irkut. While Airbus continues to outpace Boeing in terms of overall deliveries, Boeing’s latest wide-body aircraft, the 777, is doing much better than the Airbus A380, and with the introduction of Boeing’s 777x, we expect Boeing’s wide-body sales to perform better than those of Airbus, and this should translate into slightly increased market share in 2019. This is mainly owing to the Emirates, who will decide whether or not to switch to the new 777x model being offered by Boeing. Should this happen it would effectively end the the A380 program, and help push Boeing’s market share to 45%.

Airbus has largely been reliant on its single-body aircraft the A320 NEO to retain market share, and has used it to shore up its sales. This compared to Boeing’s version of the single-body 737; which has seen less demand (Boeing delivered 52 737’s per month during 2018), mainly due to the A320 NEO being more fuel-efficient. We expect lower demand for the A320 NEO aircraft in 2019, and this could translate into Boeing coming up on top in terms of overall sales for the year. Russian airline maker Irkut’s new single-body commercial airline, which will enter production in 2019, is also widely anticipated to do well, but questions remains about its performance, it is yet to be seen how well the aircraft performs once it enters service. Meanwhile, China has come up with their own versions of the single-body aircraft, and it is expected to enter service in a couple of years.

Defense:

Boeing’s defense contracts are largely dependent on its FA-18 aircraft, this compared to the F-35 Lockheed aircraft which is its main competitor. While the F-35 is expected to become the backbone of the U.S military replacing the FA-18 eventually, we believe the FA-18 aircraft will continue to see demand through the next decade, helping Boeing’s defense revenues remain consistent. But risks do remain if the military decides the F-35, (which has been historically plagued by issues) is to permanently replace the FA-18. With Germany recently considering the FA-18 over the F-35, this should help the fighter jet’s case to remain in production. Boeing may see an increase in earnings over the next 4-5 years from the order should it go through. Boeing also continues to see strong demand for its helicopters with Russia’s Kamov and Mi-26 models mainly offering competition.  We expect Boeing’s helicopter sales to remain robust through the year, especially in international markets.

We believe that with Airbus shutting down key commercial aircraft models, and Boeing gaining as a result, and that also combined with continued defense contracts, Boeing’s market share will improve during the year.

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