The Boeing Company (BA) projects that China will need 5,260 new commercial airplanes, valued at $670 billion, over the next 20 years. Boeing is bullish over the Chinese market since it expects 75% of the new demand will be for growth instead of replacement. The Chinese market will benefit from sustained strong economic growth, growing trade activities and increasing personal wealth.
Boeing predicts that small and intermediate twin-aisles, such as the Boeing 787 Dreamliner and 777, will account for a significant part of future deliveries. These airplanes are expected to be the highest value segment, making up 48% of the market in value with some 1,190 new deliveries anticipated. The expansion of the Chinese market has also unleashed pent-up demand for broader international travel.
Boeing expects Chinese carriers to experience rapid international expansion over the next 20 years, with an annual increase rate of 8.9% on average. Tourism in China will also help fuel a strong demand for single-aisle aircraft, with total deliveries of single-aisle airplanes reaching 3,650 through 2031. Also, the new 737 MAX family will allow Boeing to continue to deliver the most fuel-efficient, capable airplane with the lowest operating costs in the single-aisle market.
Worldwide, Boeing projects investments of $4.5 trillion for 34,000 new commercial airplanes to be delivered during the next 20 years.
Currently, Boeing jets are the mainstay of China's air travel and cargo system. More than 50% of all the commercial jetliners operating in China are Boeing airplanes. Some 6,000 Boeing airplanes fly throughout the world with integrated China-built parts and assemblies. China has a component role on every current Boeing commercial airplane model - the 737, 747, 767, 777, as well as the world's newest and most innovative airplane, the Boeing 787 Dreamliner.
Boeing enjoys a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries and is one of the largest aerospace and defense contractors in the world. Besides, its revenues are spread across more than 90 countries around the globe.
Boeing expects its full-year 2012 Commercial Airplanes' deliveries to be between 585 and 600 airplanes, which are already sold out. This includes an expected 70 to 85 787 and 747-8 deliveries. Commercial Airplanes' 2012 revenue is expected to be between $47.5 billion and $49.5 billion with operating margin hovering around 9.0%.
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. This is in sync with other aerospace and defense behemoths, General Dynamics Corporation (GD) and L-3 Communications Holdings Inc. (LLL).
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