Global Economic Growth, Liberalization Drive Airplane Demand

Air transport is a crucial part of the global economy. People need to fly and airlines need new airplanes, both to satisfy growing demand and to improve the efficiency and economics of their fleets. Over the next 20 years, global demand for commercial airplanes will create $2.6 trillion worth of airplane investment opportunities. Competition among airlines will continue to focus on the convenience of nonstop flights and frequent departures, sustaining the value of airplanes that are efficient and economical to operate in multiple markets. The spread of liberalization to markets outside North America and Europe will enhance asset liquidity and reduce investment risk.

Global GDP, a reliable indicator of demand for air transport, is projected to grow at an average rate of 3.1% per year over the next 20 years. The 2006 Boeing Current Market Outlook projects that air traffic will continue to outpace GDP growth, with passenger traffic growing an average of 4.9% per year and air cargo traffic growing an average 6.1% per year.

Demand for new airplanes is the product of expanding air transport markets and the need to replace older, less efficient airplanes in the existing fleet. During the next 20 years, airlines will replace 9,580 airplanes, 2,220 of which will be converted to freighters and remain in the active fleet. To meet growing demand for air transport services, the world’s air carriers will add 17,630 new airplanes to their fleets, requiring a total of 27,210 new airplane deliveries by the year 2025. This rising demand will keep airplane asset values strong and stable throughout the forecast period.

The global commercial airplane fleet will grow from 17,330 airplanes today to 35,970 in 2025, with delivery of 9,580 replacement airplanes and 17,630 new airplanes for fleet expansion.

Liberalization, Competition Shape Market Growth
Liberalization of air transport markets ushered in the current era of competitive fares and convenient service in North America and Europe. Even in these regions, where liberalization has taken firm hold, there is room for further progress as trade barriers and restrictions on international ownership persist. Of equal importance over the long term, the world’s developing economies are increasingly embracing liberalization, in order to unleash the benefits of airline competition. 

Competition fostered by liberalization will continue to favor airlines that offer nonstop flights and frequent departures. Consequently, airlines will meet traffic growth requirements primarily by increasing frequencies and adding new point-to-point flights.

The largest number of aircraft investment opportunities will come from single-aisle airplanes, which will account for 16,540 deliveries. The greatest share of investment value will come from twin-aisle airplanes, which will account for 6,230 deliveries. Large airplanes, the size of the Boeing 747 and larger, will offer only 3% of the airplane investment opportunities over the next 20 years, but will represent a 10% share of the total investment value.

Competition in liberalizing markets will spur airlines to offer more frequent and direct flights. Average airplane size will therefore remain stable at the same level it has maintained since 1990.		The single-aisle market presents the greatest number of investment opportunities, while the twin-aisle market captures the greatest share of investment value.

Geographical Diversity Reduces Economic Risk
The global market is becoming more diverse across the world’s regions. Traditional market giants, North America and Europe, will continue to be strong players, accounting for a 35% and a 24% share of the total market by number of airplanes delivered.

Yet the next 20 years will see the Asia-Pacific region become the world’s largest passenger traffic market. Asia-Pacific will gain a 29% share of airplane deliveries to surpass Europe’s delivery share. In terms of value, the region’s $930 billion worth of deliveries amount to a 36% share of the total $2.6 trillion market, surpassing both North America’s 28% share and Europe’s 24% share.

Markets in the world’s other regions are also strengthening. The Middle East region has used its well-developed airport infrastructure and liberalized air service agreements to create vibrant centers of tourism and commerce. Middle East airlines will take delivery of 1,110 airplanes, 56% of which will be long-range, twin-aisle jets, including 80 airplanes in the 747-or-larger size category.

Profitable airlines are not limited to the world’s largest markets. Each of the world’s six regions can claim at least one airline that ranks in the top seven, in terms of profit margin. In fact, six of the top 30 airlines are from Africa or Latin America. Latin America will take delivery of 1,680 new airplanes, mostly single-aisle jets for service within the region, as new airlines spring up and the low-cost business model spreads. Africa, with more than 50 nations, more than 12% of the world’s population, and an economy expanding 40% faster than the world average at 4.4% per year will need 430 new airplanes. Increased leisure travel, especially from Europe, and commerce between countries not connected by ground transport will bolster demand in the region.

The growing diversity of the airplane market reduces airplane investment risk by facilitating placement of airplane assets and providing alternative markets as a hedge against regional economic cycles.

Clearly, the next 20 years offer rich airplane investment opportunities. The Boeing product strategy is firmly based on the market realities that create value for airlines and financiers alike. Boeing Capital Corporation is dedicated to help Boeing customer airlines obtain favorable financing for their fleet enhancement and expansion requirements. Bringing investors and financiers together with airline customers, we facilitate all types of airplane transactions, including sales, leases, title transfers, and airplane upgrades and conversions.