Some may be puzzled by our optimistic headline, given the current economic environment. Fuel prices remain at record levels. Credit is tight around the world. Economies in the United States and the eurozone are soft. And the International Air Transport Association projects that the world’s airlines will lose billions of dollars this year.

Our Current Market Outlook is based on the long-term drivers of air travel growth, not simply today’s current conditions. We look deeper than today’s headlines, continuously gathering and analyzing data from a variety of sources, many of which are not readily accessible to media commentators.

Our analysis shows clearly that, despite the shocks that are currently affecting the industry, global economic growth, measured by world gross domestic product (GDP), is still a key driver of demand for aviation services. GDP is projected to grow at an average rate of 3.2% during the next 20 years, driving global passenger traffic to rise 5.0% per year and air cargo traffic to rise 5.8% per year. By the year 2027, the world’s airlines will take delivery of 29,400 airplanes with a total value of $3.2 trillion to keep pace with that growing demand.

Recent developments will however, have two significant long-term effects on the aircraft market.

First, airlines will accelerate their fleet renewal plans to replace older, less-efficient airplanes with the newer jetliners that use less fuel and meet ever more stringent environmental standards.

Historically, replacement aircraft have represented about one third of the airplane market. Between now and 2027, the replacement market will expand to about 43% of deliveries (12,500 airplanes).

The relatively low fuel prices of the past decade allowed airlines to defer fleet renewal, but operating older airplanes is an increasing drain on airline finances. As a consequence, the economic life of some older models may be compressed as the latest generation of highly efficient airplanes raises the bar on competition.

By 2027, about 82% of the airplanes in service will be airplanes manufactured since 2008.

Second, airlines will adapt their business models, and therefore the type and size of airplanes that they operate, to the prevailing economic conditions.

The need to make up for deferred fleet renewal will add urgency to airline efforts to replace less efficient airplanes with newer airplanes that use less fuel and require less maintenance.

For example, to optimize seat-mile costs, airlines will move decisively away from smaller regional jets toward larger regional jets and single-aisle airplanes. For the same reason, many operators of single-aisle jets will tend to favor the next larger size airplane within the single-aisle category. Single-aisle airplanes will account for 19,160 (65%) of the new airplane deliveries.

Regional jets and single-aisle aircraft account for roughly 90% of weekly departures. As airlines tend toward incrementally larger airplanes within each seat-count category, flights currently flown by regional jets will shift to larger regional jets and single-aisle airplanes. Within the twin-aisle category, larger airplanes will take a greater share of weekly frequencies, but the shift toward larger airplanes tops out at about 400 seats. Airplanes of more than 400 seats will not gain appreciable numbers of frequencies.

Some twin-aisle operators will also replace existing airplanes with larger, new models. But, the overall trend toward increased size stops at about 400 seats, where increased trip cost begins to erode the seat-mile cost advantage of larger airplanes. In addition, the convenience and abiding popularity of point-to-point service will continue to provide competitive advantages to airlines. To gain ability to offer point-to-point services in the widest variety of markets, airlines will replace some of the biggest airplanes in service today with the latest generation of large twin-aisle airplanes. The largest category of airplanes (Boeing 747 and larger) will therefore not see an appreciable gain in total airplane market share. Together, twin-aisle and large airplanes will account for 7,730 (26%) of new deliveries and 55% of new airplane market value.

The increasing geographic diversity of airplane markets will help mitigate the effect of cyclical demand. Rapid economic growth and rising incomes in the world’s fast-growing economies are stimulating business travel, spurring air cargo, and making it possible for whole new populations to afford to fly.

In 1970, airlines in Asia operated only 2% of the world’s commercial airplane fleet. As a result, the industry relied on European and North American markets, where nearly 90% of the fleet was in service. By 2027, the Asia-Pacific region’s fleet size will attain parity with North America, each accounting for approximately 30% of the fleet in service. The Asia-Pacific region will lead the globe in air travel growth with an annual growth rate of 6.7%. The region’s airlines will take delivery of 9,160 airplanes over the next 20 years, nearly tripling the size of its fleet. Europe, Russia, and Central Asia together will account for just over 25% of the world’s fleet.

Asia is projected to account for the greatest share of the world’s new airplane requirement, both in number of deliveries and market value. Of the nearly 9,200 new airplanes needed by Asia-Pacific airlines over the next 20 years, 40% will go to China.

Leading the world in air traffic growth with an annual increase of 7.9%, China will help the Asia-Pacific region become the world’s largest aviation market. Domestic travel in China will grow at a heady rate of 8.9% as the nation’s aviation infrastructure catches up to its economy and population. By 2027, about 45% of global air travel will be to, from, or within the Asia-Pacific region. Markets in the Middle East, Latin America, and Africa, though relatively small compared to Asia, will also post strong growth.

Liberalization of regional markets and improving global financial infrastructure are catalyzing a geographical shift in investment and financing opportunities. The European airplane market will for the first time equal the North American market in value at $740 billion. The Asia-Pacific region will offer $1,190 billion in financing opportunities. Recent orders and burgeoning activity in the low-cost carrier segment has prompted a 40% boost in this year’s forecast for the Middle East region! The Middle East market is valued at $260 billion over the next 20 years.

Southwest Asia is second only to China in terms of aviation growth. Air transport demand will grow faster for operators in Southwest Asia than in any other region, with passenger miles increasing 8.0% and air cargo miles by 8.9% per year. The region’s fleet of aircraft will grow from 430 airplanes today to 1,450 airplanes by 2027, for an average growth rate of 6.3% per year.

Asia is projected to account for the greatest share of the world’s new airplane requirement, both in number of deliveries and market value. Of the nearly 9,200 new airplanes needed by Asia-Pacific airlines over the next 20 years, 40% will go to China.

Pressure to reduce aviation’s contribution to man-made emissions will continue. As reported elsewhere and in previous issues of Point-to-Point, Boeing is taking a leadership role in developing new airplane technologies, sustainable sources of carbon-neutral fuels, and emissions-reducing operating procedures. Airlines are moving toward more efficient airplanes and network structures.

The world community has every reason to collaborate on global emissions guidelines, as air transport remains crucial to the world’s transportation infrastructure and the global economy. Noting that rising oil prices have proven more effective than decades of regulation in reducing fuel use and emissions in the ground transport industry, we are confident that the aviation industry will rise to meet well-crafted environmental regulation.

Investment opportunities will continue to be strong in the aviation industry. Diversity in airline business strategy, a geographically balanced aircraft market, and an expanding global financing infrastructure ensure that the $3.2 trillion aircraft market offers ample prospects for aviation financiers.

To review the complete 2008 Boeing Current Market Outlook, or to order a printed copy, please visit www.boeing.com/commercial/cmo/