(BA) Boeing Sees $4 Trillion Commercial Aircraft Market

The Boeing Company (BA) estimates a $4 trillion market for new commercial airplanes in the next 20 years, according to its 2011 Current Market Outlook.

The company’s annual commercial aviation market analysis foresees a market for 33,500 new passenger airplanes and freighters between 2011 and 2030. Boeing’s projection of growth is based on the recovery witnessed in world economies and strong demand for fleet addition and replacement.

Boeing expects passenger traffic to grow at 5.1% annually over the long term and the world airplane fleet to double by 2030. The single-aisle market is expected to see strong demand around the world and is expected to increase its share in  the market. World commercial airliner fleet composition is expected to change significantly by 2030 with single-aisle jets making up 70% versus current 62% of the total fleet size.

Boeing’s multi trillion dollar outlook is fuelled by robust growth in China, India and other emerging markets. China, which has experienced double-digit growth in gross domestic product in recent years, is forecasted to grow at 7% per annum; while South Asia, which includes India, is forecasted to grow at 7.1%.

Asia Pacific is forecasted to have the maximum demand for new airplanes over the next 20 years and will represent the largest market by value of deliveries at more than $1.5 trillion. The region will account for more than a third of new deliveries worldwide, while the Middle East and Latin America will also continue to show very strong growth.

European and North American carriers will continue to see demand for replacement airplanes as they retire older, less fuel-efficient models. Boeing predicts 94% of the European fleet operating in 2030 will be delivered after 2011, with airplanes that are better for the environment, passengers and the airlines. The company expects 40% of all new airplanes to be delivered over the next two decades to be mostly replacements.

The current industry backlog of more than 2,000 twin-aisle aircraft shows the strength of this market segment. The continued growth in long-haul connections will fuel the need for new twin-aisle airplanes due to the increase in new, nonstop markets. With 1,400 deliveries, twin-aisle airplanes will make up 19% of the total European deliveries during the forecast period. Liberalization, as well as fragmentation and new mid-size, long-range airplanes such as the 787 Dreamliner, the 777-200LR (long range) and 777-300ER (extended range) will increase the need for intermediate twin-aisle jets. Large aircraft, such as the 747-8 Intercontinental, will make up a market segment valued at $270 billion.

Boeing projects the world freighter fleet to increase from 1,760 to 3,500 airplanes. Additions to the fleet will include 970 new-production freighters (market value of $250 billion) and 1,990 airplanes converted from passenger models. Large freighters (more than 88.2 tons capacity / 80 tonnes) will account for 690 new-build airplanes. Medium freighters (44.1 to 88.2 tons / 40 to 80 tonnes) will total 280 airplanes. No new standard-body freighters (49.6 tons / less than 45 tonnes) will be required, but there will be 1,240 standard-body conversions. On average over the next 20 years, air cargo traffic will grow at a rate of 5.6%.

We believe, Boeing is among the best-positioned companies in its sector due to its balanced exposure to commercial aircraft and defense equipment. Furthermore, 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 Corporation (GD), Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC). We maintain our Neutral rating on the Zacks #3 Rank (Hold) stock.

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