MIAMI — Boeing says the world will need 36, 770 new airplanes in the next twenty years, worth $5.2 trillion according to its 2014 Current Market Outlook. The figure is up 4.2% from its 2013 forecast.
Narrow-body airplanes are expected to lead the charge, accounting for 25,680 , or 69.8%, of the total, worth $2.5 trillion. Boeing says the narrow-body, single-aisle market is converging on a 160-seat average, placing its own 737-800 and 737 MAX 8 right in the middle. However the company notes that single-aisles extend, seat-wise, anywhere between 90 and 230. That expanded figure includes everything from the Embraer E195-E2 to Airbus A321neos and 737-MAX-9s.
Despite Boeing’s description, we are not as sure that the 160 seats segment represents the center of demand over the next 20 years. Emerging markets, which Boeing figures will represent the majority of demand growth, are increasingly cash-strapped and (in certain cases) running into some mixture of rising borrowing costs, growing populism, and spatial limitations, which limits their propensity to invest money into aviation infrastructure (airports and ATC).
These nations are also increasingly conscious of environmental concerns, and the possibility of localized, or even global, action to curb carbon dioxide emissions and pollutants due to aviation is imminent. The combination of these two factors favors increased adoption of larger (190-230 seat) narrow-bodies, especially if Boeing attempts to counter the success of the A321neo with a versatile 757 successor.
Larger narrow-bodies offer the advantage of more passengers per flight (so as to cater to increasing demand without increasing frequencies), and improved fuel efficiency (countering environmental concerns). While we don’t believe that large narrow-bodies will overtake the core 737-8/A320neo market size, we do believe they will represent about -30-35% of sales (midpoint estimate) and between 40-45% of sale value for the narrow-body sector. At the moment, that would appear to favor Airbus, whose A321neo is the clear market leader in the segment, but of course much depends on Boeing’s clean sheet plans, which could reverse that problem in the latter part of the period.
Wide-body, twin-aisle sales will still pull a respectable 8,600 frames worth $2.5 billion. Boeing splits the category into three sub-categories; small, medium, and large. Small widebodies, such as 200-300 seat 787-8s and 777-8Xs, will account for the bulk of such jets, 4,520. Medium sized, 300-400 seat wide-bodies like the 787-9, 787-10, and 777-9X, will sell nearly 3,460 frames according to Boeing.
The largest jets, comprised of 400+ seat jets like the A380 and 747-8i, will sell 620 frames, the company predicts. That would match present production rates for both the 747-8 (including the freighter) and Airbus A380 combined, indicating Boeing is still hoping for a bounce-back in the very-large aircraft market. With new engines, and potentially an A380-900, we believe that the market size could be upwards of 800 airframes, though including the 777-9X, which is technically a VLA, creates a more realistic market size upwards of 1,500 air frames.
Boeing’s market leadership in the wide-body segment is offset by Airbus’ superiority in narrow-bodies, a gulf which we expect to grow in the next decade due to Airbus’ advantage in the large narrow-body sphere. The diagram above illustrates Boeing’s more favorable positioning to service diverse-sized wide-body demand, and the launch of an A330neo, which would help narrow the difference in sales figures, wouldn’t fix Airbus’ coverage issues.
Geographically, the company believes growth will be driven largely by the Asia-Pacific region, which is expected to capture 36% of the total with 13,460 deliveries. North America and Europe are each expected to chalk up 20%, with 7,550 and 7,450 deliveries each. Latin America & Middle East tie with 2,950 jets and 8% each. Russia and Africa trail with 1,330 and 1,080 jets respectively.
In our opinion, Boeing underrates the market potential of African aviation. We believe that the likely market size, especially for narrow-body aircraft, is upwards of 2,500 aircraft over the next 20 years. Pan-African trade is likely to grow thanks to rising Chinese influence and investment, and the possibility of even regional customs unions would create an explosion of business travel demand.
Moreover, as Africa’s cities grow in wealth and stature, the relative safety of air travel versus other forms of transit is likely to provide an extra boost to demand; analogous to the higher air travel demand relative to per-capita GDP in Indonesia due to that nation’s geography.