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Monday, July 14, 2008

Boeing Forecasts RJs as “Declining Segment”

In direct contradiction to Embraer’s forecast, Boeing said regional jets will be a declining segment of the industry as airlines up-gauge to single-aisle aircraft. The company, which said that regional jets will still be an $80 billion segment over the next 20 years at 2,510 units, cited capacity, economic and environmental constraints. Related Story It did say, however, that regional jets would constitute 19 percent of the market between 2008 and 2019 vs the growth to 15 percent over the last eight years.
“As airlines seek better financial returns, they match the airplanes used more closely to the precise economics of the routes they fly,” said Boeing, concurring with Embraer’s right-sizing philosophy. “This means that airlines will, in general, use larger regional jets and single-aisle airplanes, and more small- and medium-sized, twin-aisle airplanes.”

Boeing also predicted:
• Single-Aisles: 19,160 units ($1,360B) -- Largest segment by units
• Twin-Aisles: 6,750 units ($1,470B) -- Largest segment by investment
• 747 and larger: 980 units ($290B) -- Small but significant market
Story continues below

"We're seeing an increasing share of airplane deliveries to the Asia-Pacific region, as well as the Middle East, Latin America, and the Commonwealth of Independent States (CIS)," Boeing Commercial Airplanes Vice President-Marketing Randy Tinseth said, agreeing with assessments by both Embraer and Bombardier. "The result is a much more geographically balanced and more stable long-term market, which is less vulnerable to swings in regional economies or other variations in demand." (See related Embraer story in this issue)
Both Embraer and Bombardier concur that there will be an increasing demand for larger aircraft, prompting the proposed Bombardier 110- to 149-seat CSeries. Demand for 20- to 149-seat commercial aircraft is expected to reach approximately 12,900 new aircraft in the next decade and 17,500 in the 20-year period from 2008 to 2027, according to Bombardier's Commercial Aircraft Market Forecast. Related Story Forecasted demand is valued at approximately $528 billion, said Bombardier. Embraer sees a need for nearly 7,500 aircraft in the 30- to 120-seat market through 2027, the vast majority of which would be in the 60- to 120-seat segment. Story continues below

The forecast released last week by Boeing shows a $3.2 trillion market for new commercial airplanes over the next two decades, driven by an increasing demand for airplanes to replace older, less efficient aircraft. The company noted that strong orders over the last three years has put more than 30 percent of the forecast already in backlog – a record 31 percent of Boeing’s forecast for airplanes with more than 100 seats (7,900 aircraft).
The Boeing 2008 outlook calls for a market of 29,400 new commercial airplanes (passenger and freighter) by 2027, with a balanced demand in aircraft by region. The forecast takes into account the industry's near-term challenges, including a slowing worldwide economy, surging fuel prices, slowing traffic growth in some markets, and concerted action by airlines to balance costs and revenues.

In the year 2027, 82 percent of the fleet will be airplanes that do not exist today. They all will have been delivered new and will be better than today's fleet in every respect. More environmentally progressive. Better for passengers. And better for airlines. “Airplanes in 2027 will be more productive,” said the company. “Each will carry about 40 percent more traffic (RPKs) than the average airplane today," said Boeing. "Fewer airplanes will be needed to accommodate the same volume of travel. So the fleet needs to grow by only 3.2 percent each year.”

“The influence of current market conditions is clearly reflected in the 2008 outlook, with replacement airplanes taking a greater share of demand (43 percent) than previously forecast (36 percent) owing to the loss of economic viability of older aircraft in light of higher fuel costs,” said Boeing. In addition, Boeing is forecasting a slightly smaller fleet size at the end of the 20-year period (35,800) than predicted in the previous outlook (36,400). Compared with today's world fleet of 19,000 units, this represents an annual increase of 3.2 percent per year, same as the estimated economic growth rate.
"Over the more than 40 years that Boeing has been forecasting the commercial aviation market, we've experienced other challenges with their own dynamics and their own impact on global air travel,” Tinseth said, pointing to two major world recessions, terrorist acts, the Asian financial crisis of 1997, the SARS (severe acute respiratory syndrome) outbreak in 2003, and two Gulf wars. “What we've learned is that our industry, which is based on the need to transport passengers and freight via our global aviation system, is extremely resilient. Air travel has grown by an average of 4.8 percent over the past 20 years."
New airplanes will accommodate a forecasted 5.0 percent annual increase in global air travel, and a 5.8 percent annual increase in air cargo traffic. Single-aisle airplanes will make up the bulk of the deliveries during the next 20 years. Strong domestic and intra-regional air travel growth in emerging Asia-Pacific markets, along with continued growth of low-cost carriers worldwide is driving demand in this segment.

• The average growth in airline passenger numbers will be around 4.0 percent each year. More people will be traveling by air as economies grow. Markets will open up through reduced regulation and increased competition. As markets expand, new travel opportunities will mostly be on longer-distance flights.

• Asia is now expected to need the most new airplanes as well as representing the largest market by value of deliveries. For the first time, the value of the European airplane market will be equivalent to that in North America. As the airplane market expands, welcome competition is anticipated from manufacturers in Asia and CIS.

• New trade routes and global sourcing will stimulate air cargo markets, for example, with strong growth in Southwest Asia. One-stop-to-anywhere airlines in the Middle East have a highly expansive vision. Investment in infrastructure and airplanes is on a scale to match.

• In 2027, Asia Pacific and North America will both have around 30 percent of the fleet in service, with a further 25 percent in Europe and CIS. There also will be more balance between different types of airlines and between replacement and growth demand for airplanes

• A shift toward larger freighters and new, more efficient airplanes will help keep air cargo transport affordable. Sustained growth of world trade and global GDP will drive a 5.8 percent average annual increase in air cargo traffic, consistent with past trends. New air trade routes will reach out to under-served places.

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