) revenues and earnings are set to grow in 2014 as it delivers more
airplanes to airlines on the back of its highest backlog in years.
At the end of January 2014, the airplane manufacturer had a backlog
of 5,070 commercial airplanes, which is equivalent to around seven
years of its production at current rates. We figure driven by this
record backlog, Boeing will continue to raise its production rates
through 2014 and the next few years. In turn, these higher
production rates will drive growth in the company's commercial
airplanes segment, which constituted more than 60% of its top line
last year. Looking back, over the past three to four years, this
trend has been the primary driver of growth at Boeing's commercial
airplanes segment where both revenues and earnings have grown in
double digits annually.
Here, we highlight the key factors that will sustain Boeing's
backlog at levels that will allow it to raise its production rates
over the coming years. We figure that the recent airplane launches
from Boeing such as those of the 777X and the larger 787 will
compel airlines to place additional orders with the airplane
manufacturer, thereby supporting its backlog. Additionally, the
steady increase in global air passenger traffic driven by economic
growth, increased trade and globalization will provide confidence
to airlines about future air travel demand. This in turn will also
drive them to continue to upgrade and expand their fleets and thus
driving new orders and backlog for Boeing.
We currently have
price estimate of $135 for Boeing
, around 5% ahead of its current market price.
See our complete analysis of Boeing here
Recent Airplane Launches Will Support Backlog In The Near
Since 2010, Boeing's commercial airplane backlog has surged
every year as order inflows have exceeded airplane deliveries.
During 2010-2013, the company received orders for 3,893 airplanes
and it delivered 2,188 airplanes. As a result, its backlog surged
during this period despite steady hike in its production rates.
These strong order inflows, among other factors, were driven by the
launch of new airplane models, particularly the narrow body Boeing
737MAX in late 2011.
Late last year, the company launched the next generation of its
best selling wide body 777 - the 777X. Boeing also launched a
larger version of its current 787 Dreamliner - 787-10. Both these
airplanes are promised to be more fuel efficient than their current
counterparts with the 777X promised to be 12% more fuel efficient
and 10% more cost efficient than its competitors. We figure as
airlines face increasing pressure from high fuel costs, which
constitute around a third of their total operating expenses, these
new fuel efficient planes will go a long way in relieving pressure
off their margins. Thus, it is highly likely that orders for these
recently launched airplanes will propel Boeing's backlog through
the next few years allowing it to continue to hike its production
Rising Global Passenger Traffic Will Propel Airlines To
Continue To Invest In New Airplanes
Another factor we perceive as equally important in sustaining
Boeing's backlog is the steadily growing global air passenger
traffic. Higher passenger traffic enables airlines to raise their
revenues and book higher profits. In 2013, according to figures
released by International Air Traffic Association (IATA), global
air passenger traffic rose by 5%, from 2012. It is forecast to
grow by 6% annually in 2014 and by 5% annually over the next two
decades driven by growing global economy, rising trade and
liberalization of air travel industry. This growing global air
passenger traffic is helping airlines strengthen their financial
health, which plays a key role in demand for new airplanes. As a
result, airlines with stronger financials, seeing rising demand for
air travel, will likely continue to place orders for new airplanes.
Boeing being a leading airplane manufacturer with over 40% market
share in global commercial airplane deliveries will certainly
benefit from these order inflows.
In all, we figure higher production rates at Boeing backed by
its colossal backlog will continue to drive growth in its results
for the foreseeable future. A similar trend is expected to drive
growth at Boeing's European competitor, Airbus, together with which
it controls over 80% of global commercial airplane deliveries. We
figure this ongoing upcycle in the commercial aviation industry
driven by development of more fuel efficient airplanes and growing
global demand for air travel will continue to push global airplane
deliveries higher in the coming years.
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