On the second day of the Farnborough International Airshow, jet makers Boeing (BA) and Airbus provided their market forecasts for the coming 20 years. Aircraft are products with an economic life cycle of 20-35 years, so it should come as no surprise that the market forecasts also stretch far into the future. Boeing and Airbus tend to be conservative with their market forecasts, so we see little to no reason to assume that market outlooks give a far too rosy overall picture. We do believe that the delivery mix partly reflects each jet maker’s expectation of shifting demand for certain sized aircraft combined with their existing portfolio but are quite close overall. In this report, we have a look at how Boeing’s market forecast has changed year over. Because the CMO is quite big, we will first ‘slice and analyze’ the forecast by aircraft category and after that by region. In separate reports, we will be having a more detailed look at the forecast.
Underlying growth drivers
Unsurprisingly, the biggest drivers of demand for air travel and aircraft have remained unchanged. Boeing continues to expect GDP to grow by 2.8% annually resulting in the air travel market growing by 4.7% and fleets growing by 3.5%. With demand for air traffic outpacing fleet growth, this points towards the use of bigger aircraft but this is primarily limited to upgauging in the single aisle segment.
Shifting growth or not?
*Values in $ billions
In 2017, the forecast looked as summarized in the table above. A year ago we were pretty bumped because Boeing lumped the medium and large wide body forecasts into a single category, but we could still more or less get a feel of which aircraft would be in demand. Boeing must have known, because in their latest market outlook they lumped the small and medium/large category into a single widebody category.
*Values in $ billions
What we see is that in its most recent outlook, Boeing now expects 42,730 deliveries valued $6.35 trillion. To make the differences better visible we put the unit columns from 2017 and 2018 together and look at the differences.
Boeing expects 50 deliveries less in the coming 20 years for the regional jets. Since the bigger jet makers believe in upgauging as a solution to support growing demand for air travel, this should not come as a surprise. Part of that upgauging results in higher demand for single aisle aircraft, but most of the higher demand for single aisle jets is driven by growing demand in certain geographical areas, where the value per unit suggests that Boeing is now also believing more in the market appeal of aircraft the size of the MAX 10 and Airbus A321neo. Deliveries in the upper regions of the single aisle market could also be eroding the forecast for widebody deliveries as discussed below.
The reason for Boeing to lump both widebody categories into a single category becomes clear when we look at the difference in the combined categories. What we see is that while Boeing significantly increased its overall forecast, it has lowered its forecast for widebody aircraft by 140 deliveries. It is hard to pinpoint which aircraft will suffer from the decrease in the forecast. One would at first think that the bigger jets would be the main victim. A quick dive into the numbers, however, suggest that the medium widebody category which includes the Airbus A330, Boeing 787-8 and -9 and Airbus A350-900 will decrease by 90 units, while the remaining 50 units decrease comes from the Boeing 777X, Airbus A350-1000 and Airbus A380.
Obviously Boeing doesn’t want to make the decrease too obvious, especially not in the large widebody category in which its Boeing 777X is active. Part of the decrease in the forecast for small widebody aircraft can be explained by single-aisle aircraft now being able to fly transatlantic. The 140 units decrease might seem like a big deal, but we should also put it into context. Since this forecast is for the coming 20 years, the decrease is just 7 units per year and with the duopoly in place that boils down to 3-4 units per jet maker.
Also reflected in the forecast is an increase in freighter deliveries driven by continued growth of the e-commerce market. Boeing now expects sales in the category of the Boeing 777F and Boeing 747-8F to increase by 20 units, while deliveries in the category of the Boeing 767-300ERF are expected to increase by 40 units.
The updated market outlook by Boeing shows continued growth. We consider the forecast to be overall positive. The decrease in wide body deliveries is pretty small when annualized while the increase in single aisle deliveries, in the absence of market disrupting events or changes in the product line up, suggests that the big jet makers possibly in combination with their partners can increase single aisle output supported by demand. For jet makers, the big challenge is to align the supply chain to cater that increased production.
In upcoming pieces we will have a look at how much of the demand profile remains to be filled by jet makers and we will have a closer look at the demand per region.