Boeing Booms As Chinese Air Travel Takes Flight

9/13/2011 at 12:24PM

Boeing is betting big on China, expecting that increasing wealth and government spending on infrastructure will lead to continued growth in domestic passenger traffic. The company expects China’s fleet size of planes will more than triple over the next 20 years, requiring around 5,000 new commercial aircraft worth $600 billion during the same time-period.

Boeing has 51-52% of Chinese market share, which it hopes to maintain. We believe that Boeing’s long and close association with Beijing will help it get a large chunk of this expected demand, providing further upside to its stock price.

Boeing competes in the commercial aircraft market with the European aerospace giant Airbus as well as Embraer and Bombardier. Boeing will also face competition from Commercial Aircraft Corporation of China, which is a state-backed firm developing its own commercial jet and expecting to start deliveries to customers from 2016.

We currently have a price estimate of $91 for Boeing’s stock, about 40% above the current market price.

Chinese air travel to continue sky-rocketing

Air passenger trips in China grew by 16% from previous year. For the first time last year, the North American travel market was surpassed by travel within the Asia-Pacific region and Boeing expects that China will account for more than 40 percent of demand in the Asia Pacific region over the next 20 years.

Sustained economic growth, growth in trading activities, increasing wealth and continued market liberalization will help the growth in Chinese air industry. Also, its expected that major Chinese airlines will focus upon becoming global players and shift their focus to international markets, leading to increased demand for fleet. Growing China’s in bound tourism will also support the growing demand for commercial aircraft.

Boeing’s close association with China

Since 1916, Boeing has had a long history of cooperation with China. The company is the single largest purchaser of made-in-China aviation parts, committing hundreds of millions of dollars to dozens of suppliers. It also represents aircraft and services interests with annual turnover of roughly $5 billion dollars.

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.

We believe that this close relationship will help Boeing secure a major chunk of demand for new commercial aircraft and help increase Boeing’s share of global commercial aircraft deliveries.

Increasing market share risk after COMAC’

Boeing will likely face severe competition in Chinese market after 2016 when China’s state-backedCOMAC expects to start delivering its C919 commercial planes to customers. COMAC has already managed to enlist Ryanair as a customer, which currently flies only Boeing jets. This will hurt Boeing’s share of global commercial aircraft deliveries after 2016.

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