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Boeing Hikes 20-Year Jetliner Market Outlook by 4.1% to $15T

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The Boeing Company (BA - Free Report) recently raised the 20-year global forecast for jetliner demand by 4.1% at the ongoing Farnborough International Airshow. The global airplane fleet is anticipated to sustain the growing demand for commercial aviation services, leading to a total market opportunity of $15 trillion.

The entire projection was based on strong air-traffic trends in the emerging markets of China and India, along with the established markets of Europe and North America. Apart from the rising passenger traffic, there is a rapidly growing need for new jets, as a big wave of old airplanes are set to retire in the next couple of years.

Details of the 20-Year Forecast

Per Boeing’s latest Commercial Market Outlook (CMO), the world will need 42,730 new planes, worth $6.35 trillion, between 2018 and 2037. This estimate came 4.1% above previous year's projected demand of 41,030 jets, worth $6.1 trillion for the 2017–2036 period. Of the total units, 44% of the demand will be for the replacement of old aircraft, while the rest will support future growth.

The company continues to identify cost-effective single-aisle jets as the major demand driver, accounting for 73.4% of the total projection. This translates into worldwide demand for 31,360 single-aisle jets, worth $3.48
trillion. This figure reflects 6.2% increase over last year's projection.

Such increasing demand for jets will boost the aviation services market. To this end, Boeing expects commercial aviation services market to grow 4.2% annually, thereby reaching a value of $8.8 trillion over the next 20 years.

Competition in the Single-Aisle Space

The expected growth in the single-aisle airplane segment is largely owing to the global popularity of the low-cost carrier models. With expanding air services into emerging Asian markets such as China and Southeast Asia, major airlines in this region are compelled to accelerate the replacement of less-efficient airplanes.

Notably, these single-aisle jets have been the main area of competition between Boeing and its arch rival, Airbus Group . Currently, these two aerospace behemoths are enjoying sheer dominance in the jet market with the updated versions of their popular single-aisle jets — Boeing’s new 737 MAX 10 and Airbus' new A321 LR.

Outlook for Other Aircraft Categories

Trailing behind single-aisle jetliners are Boeing’s large wide-body, twin-aisle counterparts. In this context, the company expects wide-body jets to also witness elevated demand — projecting an additional 8,070 new planes in the 2018-2037 period. Although the figure appears unimpressive compared to the earlier one, for single-aisle category, the price of these planes is adequate to compensate for the difference in volume. The company estimates that the total value of all wide-body planes (comprising small, medium or large) sold over the period will be $2.48 trillion compared with $3.48 trillion for the narrow-body variety. Meanwhile, regional jets will account for $110 billion in global sales.

As airlines are increasingly shifting to small and medium/large wide-body airplanes like the 797, 787 and 777X aircraft, the primary demand for larger aircraft, going forward, will be in the cargo market. On such context, Boeing projects the requirement for 920 new wide-body freighters over the next 20-year period.

Deals Signed at the Farnborough International Airshow

Demand for Boeing’s commercial airplanes has been on the rise, due to a steady increase in passenger and freight traffic. Recently, at the Farnborough International Airshow, Boeing entered into an agreement with
Aviation Capital Group (ACG) to deliver 20 737 MAX 8 airplanes valued at $2.34 billion at list prices. The company also signed an agreement with Vistara, where the latter has agreed to order six 787-9 Dreamliners, with options for four more jets valued at $2.8 billion at current list prices.

During the event, the company also signed a deal involving orders and commitments for delivering up to 78 Boeing airplanes to Air Lease Corporation (AL - Free Report) . The deal worth $9.6 billion at current list prices included 75 737 MAX 8s and three 787-9 Dreamliners. Given the enormous commercial demand in the market, Boeing stands to witness significant upward traction, especially in the single-aisle market.

Boeing Vs Airbus

In terms of recent events, Boeing has been able to edge over its arch rival and put sustained pressure on Airbus SE, by acquiring major contracts pertaining to commercial airplanes, on a global scale. As per a recent report published by CNBC, Boeing has edged out Airbus in terms of order wins at the ongoing Farnborough International Airshow. The company, in terms of firm new orders alone, has won around $14 billion of new business compared to Airbus clinching contracts worth $10 billion.

Price Movement

Boeing’s shares have rallied about 70.8% in a year compared with the industry’s growth of 32.2%. The outperformance was primarily led by the growing and robust worldwide demand for its commercial aircraft and military jets.

Zacks Rank & Key Pick

Boeing currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Northrop Grumman (NOC - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman has delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 6.54% to $16.61 in the past 90 days.

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