Boeing projects significant industry growth

Can the aircraft maker accurately project demand 20 years out?

By Melly Alazraki Feb 13, 2012 5:04PM

Image: Airline (© Christie & Cole/Corbis)Boeing (BA) executives recently issued a very long-term forecast for the global aviation industry. For any other industry, a two-decade projection might almost seem silly, but Boeing's business is also a long-term one, where a product can take years to develop, test and manufacture -- and being well prepared is crucial.

The maker of the 787 Dreamliner is projecting demand of 33,500 planes worldwide by the year 2030, MarketWatch reported. The market value of these crafts is about $4 trillion -- that's right, trillion. And Boeing is gearing up to take its share of the projected demand.

The force behind this growth is the Asia-Pacific region. China and India, home to some of the fastest-growing economies, are also among the fastest-growing aviation markets. Boeing estimates that Asia-Pacific air traffic will grow by 6.7% per year over the next 20 years, the BBC reports. And carriers from the region are likely to need 11,450 new planes, worth $1.5 trillion over the same period, for both the air cargo and passenger markets.

While 40% of the demand will be for replacing old planes, the rest will result from growth. Boeing's share of that, if indeed this growth materializes, will be considerable even as competition from other manufacturers intensifies.

Meanwhile, Boeing is not only stepping up production, but it's also working on a bigger 787 Dreamliner -- yes, the same Dreamliner that has had a long series of glitches, pre- and post production. Just over the weekend, the AP reported Boeing is "frustrated" with those glitches.

The Dreamliner, a light-weight, fuel-efficient, carbon-composite aircraft, was launched three years late, causing many carriers to revise route plans and even order other planes to fill the gap. Boeing is in negotiations with airlines for compensation over the delays. Air India just increased its demands for compensation from $840 million to about $1 billion, Bloomberg reported. Of the 27 planes it ordered, Air India may receive the first this month.

Meanwhile, Boeing is also trying to improve its best-selling model, the single-aisle 737. The new version, the 737 Max, for which the company received 1,000 orders from 15 customers, is entering the next stage of testing. The goal is to have the more fuel-efficient Max ready for delivery by early 2017 -- in time to take advantage of these long-term projections. Boeing estimates a 7% growth for short-haul flights in the Asia-Pacific region, with demand for almost 24,000 single-aisle airplanes.

In 2011, Boeing's revenue was $68.74 billion, up 7% from $64.31 billion in 2010. The company also managed to expand margins and grow income by 21%. Boeing shares, meanwhile, rose about 13% over that time, outpacing major indices, but significantly underperforming rival Airbus.

These kind of long-term projections, while crucial for companies, can still sound very much out there. Companies need to account for more than just economic changes, but scientific ones as well. And let's not forget the resource crunch the world is experiencing. Just look at how Detroit car companies missed the mark years ago when they should have seen the signs.

And with the still unsure state of the global economy, as countries such as Greece are going up in flames, one can't help but feel these predictions are just as likely to happen as not.

Tags: BA


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