The American aerospace major Boeing (BA, Financial) has a solid future outlook as demand for commercial aircraft is seen to grow at a good rate over the next two decades. With more and more people taking to the skies, aircraft manufacturers are receiving heavy orders from airline operators. Currently, both Boeing and archrival Airbus (EADSY, Financial) have record backlogs and are planning their production rate accordingly to efficiently make the deliveries on time. With increasing trade between nations, improvement in the standard of living, passengers are preferring to travel by air – and this augurs well for the duo.
Rising traffic in the future
In the past few years, passenger traffic is rising at a strong rate. Boeing forecasts the worldwide passenger traffic to go up by 5% annually. This would need higher passenger capacity and, in turn, make airline operators place orders for more planes with the jet manufacturer. The commercial aviation industry is more of a virtual duopoly of Boeing and Airbus, and therefore they stand to gain the most from the future market prospect.
The Chicago-based company predicts long term aircraft demand in the next 20 years to be around 36,770 planes, which means a business of around $5.2 trillion. Of the total demand, around 42% would be replacement of older planes while the rest would signify growth, i.e. fresh demand. Developed markets such as North America and Europe would need greater replacements, while the Asia Pacific region would be the key growth driver. Passenger traffic and availability of technologically advanced and fuel efficient planes would trigger the demand for planes.
Building future aircraft
Sensing the requirement of airlines, Boeing and Airbus are engaged in creating futuristic planes. In the single aisle segment Boeing offers the 737, which is its bestselling plane. And as this segment is expected to see more than 70% of the future deliveries over the next 20 years, Boeing is building the successor of its aging narrow body, called the 737 Max. This re-engineering project was launched in 2011, and since then Boeing’s managed to get orders for more than 2,100 planes. Concurrently, the European aircraft manufacturer offers the A320 plane in the narrow body segment. Similar to Boeing, Airbus is also re-engineering the A320. The narrow body successor, dubbed the A320neo, has bagged over 3,000 orders.
In the wide-body segment, Boeing’s offering the 787 Dreamliner – its revolutionary plane that uses composite material which makes the jet much lighter and saves on fuel consumption. To contest the airplane, Airbus made the A350 that is scheduled to enter service this year. In addition, Boeing is re-engineering the 777 as well. The successor, called the 777X, was launched last year at the Dubai Airshow where it bagged record-breaking orders for 259 units. In response, this year Airbus announced its plan for adding new engines to the A330 program at the recent Farnborough Airshow. The re-engineered version is called the A330neo.
Both the aircraft manufacturers are diverting their effort in the right direction to capitalize on the rising demand for efficient planes. The tussle between the two is expected to get severe in the future as both are trying to counter each other’s offerings
Parting thoughts
The aviation industry is estimated to grow at a much faster pace. And while the duo is busy contending each other, there could be competition emerging from smaller players. Which aircraft maker will win higher order numbers? Which aircraft re-make will be a greater hit? How will the market share equation change over the long term? The answers to such questions aren’t easy. While there’s tremendous opportunity, it would be great to watch who emerges as the bigger gainer.
