Asia-Pacific Will Be The Largest Market For Boeing's Commercial Airplanes
Asia-Pacific led by China and India will constitute the largest market for new commercial airplanes, according to long term market outlook released by Boeing ( BA ). The airplane manufacturer estimates that the region will receive around 12,800 new airplanes over the next twenty years, constituting 36% of the global commercial airplane deliveries. In comparison, over this time period through 2032, North America and Europe will each receive around 21% of global commercial airplane deliveries followed by Latin America, the Middle East and Africa.
Thus, in terms of size, Asia-Pacific will be the largest market for airplane manufacturers such as Boeing and Airbus. We figure that Boeing, which has stayed of Airbus in global commercial airplane deliveries in the last couple of years, will benefit from its strong focus on this market.
We currently have a stock price estimate of $124 for Boeing , around 5% below its current market price.
Rapid Economic Growth, Liberalization & Expanding Low-cost Model Are Growing The Asia-Pacific Market
Over past many years, economies from the Asia-Pacific region have posted rapid economic growth. Progressive trade agreements among the region's countries has further helped maintain its economic growth. Boeing estimates that this strong growth in the region's economy will likely continue for the foreseeable future. Over the next twenty years, the company anticipates Asia-Pacific's economy to grow by 4.5% annually, surpassing 3.5% annual growth expected in the world economy. Accordingly, airline passenger traffic in Asia-Pacific is expected to grow by 6.3% annually over this time period, compared to annual growth of 5% expected in global airline passenger traffic.
This faster growth in passenger traffic from Asia-Pacific will force airlines from the region to increase their flying capacities significantly by adding new airplanes to their fleets. Boeing estimates that driven by this addition of new airplanes, Asia-Pacific's fleet size will nearly triple to 14,750 airplanes in 2032, from 5,090 airplanes currently. In comparison, airplane deliveries to developed regions including North America and Europe will mostly go towards replacement of aging airplanes rather than expanding fleet sizes.
Additionally, liberalization in the airline sector of many Asia-Pacific countries has also helped expand the air travel market in the region. It has enabled airlines to expand beyond national boundaries and grow the region's passenger traffic. Separately, like in developed markets, expansion of low cost carriers in the Asia-Pacific region has also expanded its air travel market through lower fares.
In all, these trends have driven strong growth in the Asia-Pacific aviation market over the last couple of decades and will likely continue to drive growth in this market for many years to come. As a result, the region will receive the largest portion of global commercial airplane deliveries in the coming years.
Growing Demand From The Region Is Propelling Boeing To Raise Its Production Rates
For Boeing and other airplane manufacturers, this growing demand for new airplanes from Asia-Pacific is enabling them to raise their production rates and deliveries and consequently revenues and earnings. Just last year, Boeing hiked production rates of three of its highest selling models - the 737, 777 and 787 Dreamliner. As a result, the company delivered 648 airplanes in 2013, up from 601 it delivered in 2012. Earlier this month, Boeing again hiked its 737 production rate to 42 airplanes per month, from 38 per month, and plans to raise it further to 47 per month by 2017. Overall, we figure Asia-Pacific will play a key role in driving growth in Boeing's results and the global commercial aviation industry in the coming years.