By Jason Simpkins
Air China announced yesterday (Wednesday) that it will buy 45 The Boeing Company (BA) jets to help cover increased domestic demand at a time when many Western airlines are struggling to overcome high fuel prices and declining traffic.
Air China will buy 15 Boeing 777s and 30 Boeing 737s at a cost of $6.3 billion, the company said on its website. The purchase will increase Air China's fleet by 35%, as the company competes with other Chinese carries for a dominant share of a market that is expected to grow 9% annually over the next several years, The Associated Press reported.
Whereas commercial airlines in developed markets have been struggling, with some even collapsing under the weight of high fuel costs and sluggish demand, airplane manufacturers have been buoyed by strong demand in emerging markets such as the Middle East and China.
In fact, a report released earlier this month predicted $3.2 trillion in aircraft sales over the next 20 years, as air travel picks up despite current price pressures.
Boeing's annual Current Market Outlook estimates that passenger travel will grow at a 5% rate, and cargo will grow at a 5.8% rate over the next several years. Despite record fuel costs, air travel and shipping have become an integral part of daily life for many consumers and businesses. Boeing says that demand will only grow.
"During 40 years of producing the Current Market Outlook, we have learned that the resilience of air transport growth comes from its intrinsic importance to the livelihood of people around the world," the report read.
Over one-third of the projected $3.2 trillion market is set to come from the Asia-Pacific region, which is expected to have $1.19 trillion in future airplane deliveries, according to Boeing data. North America and Europe are both projected to have $740 billion, while the Middle East region clocks in at $260 billion. Latin American demand is forecast at $140 billion.
In order to meet the upsurge in demand, Boeing estimates that planemakers will deliver 29,400 planes during the period, up from the 28,600 predicted last year.
Boeing Profits Soar on Emerging Market Growth
The news of Air China's purchase came one day after Boeing announced. The sheik announced he plans to use the planes to start his own low-fare airline, FlyDubai, itself an indication of demand for air travel in emerging markets.
As a member of the United Arab Emirates, Dubai is part of one of the world's fastest growing regions. That means it is flush with petrodollars and geographically speaking at the center of the developing world.
"They have a geographic advantage that no one else has," Diogenis Papiomytis, a commercial-aviation consultant with Frost & Sullivan, told MarketWatch.com. "Within 8,000 miles, they can reach something like 80% of the world."
In addition to the upstart FlyDubai, the Middle East nation also is home to Emirates Airlines, currently the world's fastest-growing carrier.
With 180 jetliners, worth an estimated $58 billion, on order, Emirates has become an industry heavyweight – especially when other top carriers are cutting their fleets. Last year, its profits soared 54%, reaching $1.45 billion. Sales jumped 32% as the airline carried more than 21 million passengers – an increase of 21% from the year before.
However, Emirates isn't the only company profiting from the surge in air traffic. Boeing is reaping huge rewards as a supplier to emerging markets even as demand slackens in the United States and Europe, which have traditionally been the company's lifeline.
Boeing's first-quarter profit soared 38%, easily eclipsing Wall Street expectations, despite hang-ups with its 787 Dreamliner. Profit from continuing operations rose to $1.21 billion, or $1.61 a share, from $873 million, or $1.12, a year earlier, the Chicago-based Boeing reported. Sales advanced 4.1% to reach $16 billion.
Profit for 2009 will be $6.80 to $7 a share on sales of as much as $73 billion, Boeing said in its first forecast for 2009. That projection also exceeded expectations.
The company's defense business is sound, and it just won a favorable ruling from the U.S. General Accountability Office on a protest it lodged over the loss of a U.S. Air Force aerial tanker deal worth an initial $35 billion – and with a potential ultimate value of $100 billion.
News and Related Story Links:
New York Times:
Three Ways to Profit From the Biggest Airport on Earth
Boeing Earnings Surprise Wall Street Just One Day After Weak Dollar Forces Airbus to Raise Prices