Boeing’s
business is getting better.
The commercial aerospace giant published its annual commercial market outlook Tuesday evening. The demand for new planes is higher than the company projected in its 2022 outlook. Travel demand from China is a big reason why.
Boeing
(ticker: BA) sees China needing 8,560 new commercial airplanes through 2042, an increase to the 20-year demand outlook from last year’s projection of 8,485 planes. Less than 4,000 planes are flying in China today.
That growth will generate demand for $675 billion in aviation services, such as maintenance and training, and require 433,000 new personnel, including 134,000 pilots, Boeing added.
More people flying is the reason more planes are needed. Boeing sees commercial air travel in China growing more than 11% a year on average for 20 years. That’s the fastest regional growth projected. Boeing sees travel demand in North America growing at about 4% a year on average. The Americas are a more mature travel market. There are about 8,000 jets flying in the Americas currently. Boeing sees that rising to about 12,000 by 2042.
Globally, there are about 24,500 commercial jets in service. That number is expected to double to about 49,000 over 20 years. Boeing projects that about 6,000 planes in the current fleet will still be flying, 21,000 new planes will replace older jets and 21,000 planes will be added to the fleet to meet the new travel demand.
The prediction of 42,000 new jets demanded over 20 years is up about 1,000 from the 2022 outlook. The new demand outlook also works out to about 2,100 planes a year. Boeing and its rival
Airbus
(AIR.France) delivered a record 1,606 planes, combined, in 2018. Wall Street projects combined deliveries will hit about 2,000 units around 2026.
Overall, Boeing expects demand for planes to rise about 4% a year on average. Back in 2003, there were about 17,000 commercial jets in service. Boeing projected there would be about 34,000 operating by 2022. Things didn’t quite work out that well and the global fleet grew about 2% a year on average.
Doubling the growth rate should be good for the stock. Boeing shares are up, but not that much. Investors don’t usually react to 20-year outlooks. The stock is up about 0.7% in premarket trading, while
S&P 500
and
Dow Jones Industrial Average
futures are both up about 0.2%.
Boeing investors don’t really need growth rates to double for Boeing stock to work. Boeing stock did just fine with a 2% average annual fleet growth. Shares gained about 540% over the past 20 years, or about 9% a year on average excluding dividends. That’s about 1 percentage point better than the comparable 8% average annual gain of the S&P 500 over the same span.
Over a shorter-term horizon, how the Chinese economy does will matter more for Boeing shares. The company’s forecast from the aviation manufacturing giant marks a glimmer of optimism about the fortunes of Asia’s largest economy, which has recently shown signs of a slowdown rattling global investors and even weighing on the
S&P 500.
Boeing said that “despite the impact of the pandemic on China’s near-term growth,” the country’s growing economy will boost domestic air travel as well as freight, which is set to benefit from continued strength in the country’s e-commerce sector. That latter projection seems supportive for Chinese tech giants such as
Alibaba
(BABA) and
JD.com
(JD), which have core businesses in online retail—a sector that also suffered in step with China’s economic woes.
“Domestic air traffic in China has already surpassed prepandemic levels and international traffic is recovering steadily,” said Darren Hulst, Boeing’s vice president of commercial marketing. “As China’s economy and traffic continue to grow, Boeing’s complete lineup of commercial jets will play a key role in helping meet that growth sustainably and economically.”
Write to Jack Denton at [email protected]
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