FLUG REVUE December 2005: Boeing Market Outlook for Germany

December 2005

BOEING FORECAST OUTLINED

By Sebastian Steinke

One could take the easy line and dismiss Drew Magill, head of market research at Boeing Commercial Airplanes as the “professional optimist” obliged to predict a steadily growing market for commercial aircraft out of loyalty to his employer. However, Magill's extremely serious analyses are not only intended to have a certain effect externally but are also used within Boeing to orient its product line and assist with long-term planning of production rates.

“It is quite simple, we are once again at the top of a cyclical demand curve, something that occurs every ten years,” he states in a matter-of-fact way. “2005 has gone a lot better than the year before. At the moment we are getting a lot of orders for the next five, six, seven years.” He predicts that the 320 deliveries achieved by Boeing in 2005 will rise to 395 next year.

He is confident that the oil price will drop back somewhat. “My prediction is $45 to $50 per barrel for the period 2007 to 2008. Demand will stabilise again and supply will increase. Moreover the difference between the high oil price and an even higher kerosene price, which has risen from $6 to $8 to $24 per barrel, will decline due to improved refineries.” However, in the long-term the price of oil will remain at this relatively high level.

To support his argument, Magill quotes the consumption figures for alternative forms of transport: a 787 will consume about as much fuel as a high-speed train, with an average utilisation of 2.3 to 3.6 litres of kerosene per passenger over a 100km distance, whereas a typical American sports utility vehicle (SUV) with two passengers consumes 10.7 litres of petrol. “The fuel efficiency of a 787 is as good as that of a Toyota Prius with hybrid propulsion and two passengers.”

Commenting on the perilous financial situation of some of the industry giants, Magill observes, “Those losses are very unevenly spread. The five biggest US airlines are bearing the brunt. But in Europe and Asia, there are still profitable airlines around. The demand is coming from there.”

Furthermore, he points out, passenger demand has recovered despite higher fares due to more expensive fuel. He has observed that for the first time since 2001 fewer than 10% of the global fleet is parked in the desert, and only 2 percent of those aircraft are modern types. Demand will remain stable this year and next year, with a global economic growth rate of 3.2%. Again in the long-term, the market is exceeding the growth that was predicted before 11 September 2001 and the SARS crisis. Within 20 years demand will more than double.

Magill concedes that aircraft purchases are currently becoming steadily more difficult to finance for many airlines. In his view, “The key is an aircraft that lenders are prepared to finance.” For this reason, Boeing is increasingly relying on heavily standardised aircraft types that will be easier to sell on later on than previous planes which frequently used to have a lot of customised extras. At the same time, reliability is becoming more important, because today's aircraft are used more intensively without any slack due to optimised operational procedures.

In aircraft construction reliable, proven off-the-shelf technology is therefore increasingly preferred to always using new high-tech products that carry the risk of teething problems. One example of this is the computer screens in the 787 cockpit which come from commercially available laptop computers, or the 787's electronic electrical power management system, which comes from the French TGV high-speed trains. Magill is not expecting any renaissance of supersonic aircraft à la Concorde, although it is just about conceivable that a supersonic business jet might be developed.

While Boeing continues to assume that there will be disproportionate growth of direct flights using medium-sized aircraft like the 787, its Chicago head office puts the market for new aircraft the size of the 747 “and above” at 771. This may just be three percent by unit number of the 25,700 aircraft expected to be required over the next 20 years, but it is also 11 percent by value of a market worth Euro 1.74 trillion. In Europe alone, the market researcher predicts demand for 6,695 aircraft worth Euro 438 billion. Of this, 67 percent by volume is expected to be narrowbody aircraft, 20 percent widebody aircraft, 11 percent regional aircraft and 2% aircraft of the size of the 747 and above.

In Germany, Boeing predicts a market for 1,000 new passenger aircraft worth Euro 71 billion. The lion's share of these aircraft will be narrowbody aircraft (66%), followed by medium-sized widebody aircraft (19%), regional jets (10%) and jets of the size of the 747 and above (5%).

According to Magill, “The 787 would be the ideal replacement for Lufthansa's A340-300s and, in 20 years' time, for its A330s.” He also believes that the 747 Advanced would be suitable for Lufthansa, albeit “assuming that we get the green light for the programme”. In that event, as well as the passenger version with 420 seats, there would also be a 747 cargo aircraft, with first deliveries commencing in 2009.

From FLUG REVUE 12/2005

Last updated 10 November 2005

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