Here's how Boeing and Airbus became a duopoly
New York (CNN Business)Global demand for new aircraft is likely to be hurt for decades because of the Covid-19 pandemic. Yet Boeing just increased its industrywide Chinese sales forecast for the next 20 years — above where that estimate stood in pre-pandemic times.
Boeing now expects overall aircraft sales to China be 8,600 new airplanes, valued at $1.4 trillion, over the next 20 years. That estimate is 7% higher than its forecast a year ago.
It’s just one example of China’s economic recovery outpacing the rest of the world. It’s also in stark contrast to the falling global demand Boeing forecast just a month ago: On a worldwide scale, Boeing slashed its 10-year outlook for industrywide aircraft sales to 18,530, 11% lower than its 2019 estimate, and cut its 20-year outlook to 43,000 aircraft, down 2% from a year ago.
Boeing regularly issues forecasts for industrywide aircraft demand in different regions of the world.
The company’s bullish view of the Chinese market is driven by its expectation that passenger traffic will rise much faster there than the rest of the world. Boeing expects 5.5% annual passenger traffic growth in China during the next 20 years, compared to only 4% annual global growth in passenger traffic worldwide.
“While Covid-19 has severely impacted every passenger market worldwide, China’s fundamental growth drivers remain resilient and robust,” said Richard Wynne, Boeing’s managing director of China marketing.
Wynne cited China’s recovery from Covid-19 outpacing the rest of the world, along with continued government investment in transportation infrastructure, a large population to boost air traffic figures and “a flourishing domestic market,” all of which “mean this region of the world will thrive.”
According to Johns Hopkins University’s tracking of global Covid-19 cases, China has had only 922 infections in the last month and three deaths. That compares to 1,893 US Covid deaths on Wednesday alone.
China, which is the world’s second largest economy, was the only major world power to avoid a recession this year. The country mounted its relatively quick recovery through several measures, including stringent lockdown and population tracking policies and government funds to boost consumer and infrastructure spending. China’s GDP is expected to grow 1.6% this year, while the global economy as a whole will contract 5.2%, according to World Bank projections.
The downturn in global air travel is expected to last until at least 2024, according to the Interntional Air Transport Association — even if there is a much quicker end to the pandemic, since recessions traditionally cause a long-term drag on air travel. And that has caused a long-term hit to Boeing’s prospects.
The company, which has a backlog of orders for nearly 4,300 planes, has nonetheless cut its production targets and is in the process of eliminating nearly 15% of its jobs. Boeing has faced headwinds selling to China in recent years given trade tensions between the United States and China under the Trump administration.
It has booked only one new order since late 2017, two freighters ordered by China Cargo in May, although it’s likely that some of its other sales to leasing companies are destined for Chinese customers.
Boeing and rival Airbus (EADSF) have a virtual stranglehold on the market for large commercial jets, although upstart Commercial Aircraft Corporation of China, or Comac, is trying to enter the market.
But Boeing CEO Dave Calhoun told investors last month that he believes Boeing is well positioned to compete for Chinese sales when they bounce back.
“We’ve had great relationships. We continue to have them,” he said. “And the airlines need this kind of lift, and we happen to be one of two people in the world that can deliver it. And that will be that way for quite a while.”
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