The Boeing Company (BA) bullish on China’s sustained economic growth, increasing personal wealth and ongoing market liberalization values the market for new commercial airplanes at $600 billion over the next 20 years. During this period Boeing estimates that China will require 5,000 new commercial airplanes.
The company is already the leading provider of passenger airplanes in China. Per Boeing’s estimates, Chinese air travel demand is growing at an annual rate of 7.6%.
Boeing expects to capture a large chunk of the $600 billion pie and also hopes that small and intermediate twin-aisles, such as the Boeing 787 Dreamliner and 777, will be a significant part of these deliveries. They are expected to constitute over 40% of total sales, with some 1,040 deliveries anticipated.
Boeing is basing its bullish targets on the assumption that major Chinese airlines will gradually shift their focus from domestic to international markets to become globally competitive. Also airlines are increasingly focusing on the vintage of their fleets as fuel-hungry, older planes weigh increasingly on earnings. Growing awareness about aviation's impact on the global climate will also determine the choice of aircraft that emits lower carbon, among other factors.
On the other hand, the internal Chinese market driven by inbound tourism will boost the demand for single-aisle planes in general and the 737 MAX in particular. The company expects deliveries for the single aisle planes to be approximately 3,550.
The multi-billion dollar dream however, expands manifold at the global level. Per Boeing's forecasts over the next 20 years the market for new commercial airplanes is valued at $4 trillion for 33,500 units.
Per the International Air Transport Association (IATA) global passenger traffic grew 5.9% year over tear in July 2011. This bullish trend will benefit the entire airline industry including the Zacks #2 Rank (Buy) companies like All Nippon Airways Co. Ltd. (ALNPY) and Copa Holdings S. A. (CPA).
Boeing has a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries. Besides, it is one of the largest aerospace and defense contractors in the world. Also its revenues are spread across more than 90 countries around the globe.
Earlier, strong performance from the commercial airplanes business and stable core operations allowed Boeing to register a solid second quarter 2011. The company surpassed both the year-ago results and the Zacks Consensus Estimates. Boeing has raised its earnings per share guidance range for fiscal 2011 to $3.90 – $4.10 from the earlier band of $3.80 – $4.00, encouraged by a solid second quarter 2011.
However, Boeing has lowered its commercial airplane delivery guidance for 2011 to a range of 485 – 495, from 485 – 500 forecasted earlier. The reduction was due to lower planned deliveries in the second half of 2011 on development programs (especially 787 and 747-8 units).
The Zacks Consensus Estimates for third quarter 2011, fiscal year 2011 and fiscal year 2012 currently stand at $1.07 per share, $4.25 per share and $5.30 per share, respectively.
Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock.
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