Economists have predicted that with growing trend in globalization air travel is all set to increase. The demand for the airplanes is set to increase in the next five years or so. Not only will the commercial segment find a surge in demand but the prediction is that even fighter planes will find favor.
That one name that pops up when discussing about airplanes is definitely Boeing (BA). Being the largest company in the industry, the company is sure going to capitalize on this opportunity. The world economic slump has badly hit the air travel industry. For the record, since the last slump, the industry has showed a slow growth of only 5.3%.
The experts at Boeing have said that the market in Asia-Pacific region is rapidly growing and they are targeting the region for exceptional revenues. China and India have huge population densities and their rapidly growing middle classes are expected to lead the growth in air travel in the regions. Around 16% of the total demand of airplanes comes from China. BA expects long haul international air travel in China to grow by 7.2% and there would be demand for 1,440 new fuel efficient wide-bodied airplanes such as the 787 Dreamliner and 747-8 Intercontinental. The analysts are expecting the air travel to grow by 6.3% per annum in the next decade with the Asia-Pacific region alone contributing 6.5% in that. Boeing plans to meet the requirement by focusing on the Asia-Pacific region in particular for the demands from the area are set to be higher than ever in the coming decade. The experts value the deal at approximately $1.9 trillion for a demand of an astounding 12,820 aircrafts.
- Warning! GuruFocus has detected 1 Warning Sign with BA. Click here to check it out.
- BA 15-Year Financial Data
- The intrinsic value of BA
- Peter Lynch Chart of BA
Problems That BA Might Face:
High fuel costs can prove to be problem for Boeing. Fuel costs form an integral part of the operating costs and with the recent urge to go green is raising fuel prices like anything. To counter this, the company is planning on coming out with fuel efficient models. Fuel efficiency and Boeing go back a long way. Its latest 787-10 Dreamliner is perhaps the most fuel efficient aircraft it has manufactured so far. It is claimed to be 25% more efficient than previously introduced planes by aircraft manufacturers. Boeing's strong R&D and innovation is well placed to cater to the need for more fuel efficient and greener airplanes.
Boeing has been very generous when it comes to paying the investors and shareholders. The cash flows are strong and are expected to remain so for the next few years. In the fourth quarter of 2013, Boeing paid its shareholders in the form of 7.6 million shares worth $1 billion and $0.4 billion worth of dividends. In the expectation of strong cash flows, Boeing's board of directors has authorized a $10 billion share repurchase program and a 50% increase in dividends. Boeing is doing everything it possibly can to capitalize on the going trend in the aircraft industry. Of course there will be intense competition that the company might have to face but as a Boeing loyalist I’d still say that there is every chance that BA will come out a winner.