New Commercial Airplane Market:

A 2.1 Trillion Investment Opportunity

Commercial aviation is poised for solid gains over the next 20 years. Affordable fares and the rising availability of convenient, point-to-point service will spur worldwide passenger traffic growth. Air traffic is projected to grow one and two-thirds times as rapidly as global gross domestic product. The growing demand for air transport will create a requirement for 25,700 new commercial airplanes by the year 2024. About 15,300 of these will be single-aisle airplanes. The workhorses of the commercial aviation fleet, these smaller airplanes serve regional markets and are the mainstay of the rapidly growing low-cost airlines.

Although the growth of point-to-point travel will help reduce congestion at major hubs, the requirement for single-aisle jetliners will remain strong. Airlines will enlist these smaller planes to expand into new nonstop markets and to increase flight frequencies on popular domestic and short-haul international routes.

Mid-size twin-aisle airplanes, such as the Boeing 777 and 787, represent the largest dollar share of the market.

Together, they account for 45% of the value of total new airplane sales over the next 20 years. These airplanes will increasingly move into long-haul markets, supplementing and sometimes replacing larger airplanes, as well as enabling airlines to create new long-distance nonstop markets and increase frequencies in existing markets. This trend, already well-established in trans-Atlantic markets, is making rapid gains across the Pacific and Europe-Asia routes.

In Europe and North America, mid-size twin-aisle airplanes will play a crucial role in busy domestic and middle-distance international markets. The most heavily traveled routes will reach optimum frequency and outgrow single-aisle airplanes. Mid-size twin-aisle airplanes are also in high demand for shorter, high-density routes within Asia.

Together, single-aisle jetliners and mid-size twin-aisle airplanes account for about 84% of the $2.1 trillion total value of commercial airplane sales over the next 20 years.

The largest commercial airplanes, those carrying 400 seats and above, represent only 3% of projected airplane purchases. Including freighters, this will amount to about 900 airplanes during the forecast period.

Accounting for roughly 11% of the total new airplane dollar value, the large airplane market is divided into two segments—airplanes with up to about 500 seats (roughly corresponding to the Boeing 747 in size) and airplanes larger than 500 seats. Total projected orders in this market segment will be divided about equally between 747-size airplanes and airplanes with more than 500 seats.  

787 Customer Tally, as of 8/10/05 — 256 Announced Orders and Commitments, 21 Customers

Boeing Product Strategy:

The Right Airplanes for the Market and Solid Investment Value

The Boeing product line is shaped by two guiding principles: Building the right airplane for the market and creating solid investment values for aircraft owners, leasing companies, and financiers.

Building the right airplane for the market means understanding how airplane operators use airplanes to earn revenue. Since the beginning of the jet age, this has meant building airplanes that are fast, quiet, efficient, and economical to operate. In the mature market of the 21st century, technology has enabled us to focus on providing greater range to serve a wider variety of markets, enhanced passenger experience to promote market growth, e-enabled technology to increase airplane productivity, and standardization to reduce acquisition, maintenance and transition costs. Efficient design, application of advanced light-weight materials and propulsion technologies help Boeing airplanes achieve exceptional fuel economy and environmental performance.

Creating solid investment values starts with recognizing that a commercial airplane may have several operators and owners during its long, productive service life. To appeal to the broadest population of potential operators, Boeing airplane families are designed to offer an orderly progression of seating capacities from 100 seats to 450 seats. Each family of airplanes shares common performance characteristics and capabilities, as well as parts, systems, and training requirements, making it easy for operators to match the right airplane to the right market—and expanding opportunities for leasing companies and investors/owners to place airplanes in existing fleets.

Boeing anticipates a continuing varied role for the single-aisle jetliner and projects a market that is 40% larger than the competitor’s prediction. The single-aisle Boeing 737NG family and Airbus A320 series are closely matched in size. But the 737 family’s greater range and lower operating costs enable the Boeing airplanes to serve a broader spectrum of markets and a larger number of potential operators.

In the twin-aisle airplane market, the Boeing product strategy diverges dramatically from that of Airbus Industries. Boeing focuses on creating a product line that gives operators maximum flexibility to match airplane capacity to passenger demand. Complementary capabilities and passenger accommodations across the twin-aisle product line enables operators of Boeing airplanes to move airplanes between markets, and gives owners and leasing companies greater opportunity to place airplane assets in existing fleets.

Working together with the investor and financial communities during the design process has resulted in a product strategy with great market acceptance. By managing its production of new jetliners to actual market requirements, Boeing minimizes market over-supply to help manage superior life-cycle residual value performance.

The 787 Dreamliner demonstrates most dramatically the benefits of designing to maximize investor value. The 787 Dreamliner realizes an unprecedented level of standardization. The Dreamliner is the first jetliner in history that can use engines from different manufacturers interchangeably. Beyond striving for systems and equipment commonality, Boeing is standardizing maintenance requirements and procedures that facilitate movement of airplanes between operators subject to different regulatory authorities. Boeing works continually to extend the benefits of new product advances to existing Boeing models.

Consistently figuring at the top of airplane investment portfolios, Boeing airplanes reflect a comprehensive understanding of the commercial airplane market and the market’s evolution. 

Boeing’s Game-Changing Product Strategy:

Complementary Families of Twin-Aisle Jetliners

Mid-size, twin-aisle commercial airplanes, seating between 200 and 400 passengers, are routinely called upon to serve a remarkable diversity of markets. Markets vary from shuttle routes as short as a few thousand miles to nonstop point-to-point flights that stretch nearly halfway around the globe.

No single airplane family can meet this wide spectrum of requirements. Consequently, airlines have been forced to operate a complex mix of twin-aisle models, each optimized for a particular combination of range and seating capacity.

The complementary 777 and 787 families cover the entire span of twin-aisle markets, enabling airlines to simplify their fleets. Market versatility of the 777 and 787 expands the pool of potential leasing and resale customers, greatly reducing the economic risk to airplane owners and investors.

FLEXIBILITY COMES TO THE TWIN-AISLE MARKET

The new 787 Dreamliner family was designed to complement the highly successful 777 family. Together the two families offer eight mutually compatible models.

The benefits of this strategy are dramatic in the rapidly growing medium-density, nonstop segment of the twin-aisle market. In this mid- to long-range segment, the 777 and 787 families offer four sizes of twin-aisle jetliners: the 777-200ER, 777-300ER, 787-8, and 787-9. These four jetliners cover the broad span of three-class seat-count requirements from 223 to 365 seats in airline preferred 20% increments.

The Boeing strategy of offering four complementary jetliners in evenly graduated sizes enables airlines to match the number of available seats to passenger demand with unprecedented precision.

All four Boeing twin-aisle airplanes share crew and training requirements, so airlines can use a single pool of pilots to cover the entire market segment. The airplanes’ common range capabilities enable airlines to move airplanes freely about the network without regard to performance issues. In fact, because all four airplanes cruise at a speedy Mach 0.84 to Mach 0.85, airlines can reassign these airplanes on very short notice without rewriting airline flight timetables.

To address the same market requirements, the competition has created three families of twin-aisle aircraft and is now struggling to create a fourth, the A350. The Airbus families do not completely cover twin-aisle seat-count requirements and suffer from limited operational commonality at best. They vary widely in range, speed, and economic performance.

GREATER RE-MARKETING OPPORTUNITY

The 777 and 787 fly the same airline timetables with a high level of passenger comfort. This enhances opportunities to place airplanes with operators. Passenger demand fluctuates by season, by day of the week, by peak demand period, and even by direction. 777s and 787s enable airlines to adapt quickly to the variability of demand. A high level of aircraft standardization enables leasing companies to transition 777s and 787s quickly between operators around the globe, wherever passenger demand is strong.

The Boeing strategy of designing the 777 and 787 as complementary jetliner families reduces investor risk by enhancing operator flexibility and economic strength. Yet, should resale become necessary, airlines and investors can expect the 777 and 787 to hold their value in the airplane market.

Advances in the 777 and 787 are driving continual improvements to the rest of the Boeing product line. Technologies and support products and services that provide economic advantage to operators and value to owners are incorporated as options and retrofits in the product line.

The Boeing product strategy creates airplanes that fly the way airlines and passengers prefer to fly. With the highest utilization rates, superior operating economics, and unrivaled market flexibility, Boeing airplanes are dependably exceptional values to operators, financiers, and investors. 

Creating Value Through Discriminating Financing Solutions

• The 737-900ER, formerly the 737-900X, becomes the newest member of the Next-Generation 737 Family
• The airplane can carry up to 215 passengers 2,700 nautical miles in single-class configuration
• First 737-900ER is scheduled for delivery in the first half of 2007

• For authorizations made through 9/30/2006
• Countries must select Ex-Im Bank-prescribed Treaty declarations
• If an agreement is reached with the European Export Credit Agencies on a common approach to Cape Town prior to that date, efforts would be made to make an earlier transition to the common approach
• Will apply to leasing companies if both lessor country and lessee country have ratified the Treaty

• Undergoing a renegotiation for large aircraft financing parameters
• Brazil and Canada have been invited to join in the negotiations
• Government parties expect the negotiations to take approximately two years to complete an agreement

• The hull war market has substantially withdrawn coverage through a variety of insurer specific exclusions.
• It appears possible that the liability war market will also exclude coverage for dirty bombs. The signs are fairly clear that liability insurers are keen to implement the exclusion soon, given the success of hull war insurers.
• Such coverage exclusions raise numerous implications, some of which will be explored further in future publications.