China: biggest air travel market

China: biggest air travel market
A report released in the Farnborough Airshow estimated Boeing’s sales forecast. The report ‘s upbeat forecast underlined the importance of China to the aircraft industry as one in four of Boeing's passenger..

A report released in the Farnborough Airshow estimated Boeing’s sales forecast. The report ‘s upbeat forecast underlined the importance of China to the aircraft industry as one in four of Boeing's passenger aircraft went to Chinese customers last year.

Background 

Boeing Company , an American aerospace company is the foremost manufacturer of commercial jet transports. It is also a leading producer of military aircraft, helicopters, space vehicles, and missiles. It merged with McDonnell Douglas Corporation in 1997. Formerly known as Boeing Airplane Company, the firm assumed its current name in 1961 to reflect its expansion into fields beyond aircraft manufacture. It had its headquarters in Seattle until 2001 and later relocated to Chicago. 

The history of cooperation between Boeing and China’s aviation industry traces back to 1916. The first engineer that Bill Boeing hired was China-born Wong Tsoo.  He helped design the company’s first commercial success, the Model C bi-wing airplane. Mr. Wong later returned to China, playing an important role in early Chinese aviation. In 1972, the historical visit by President Richard Nixon to China led to the introduction of Boeing aircraft to the Chinese market. 

The State Council of China declared that aviation will remain a critical component of China’s continuing economic development. Boeing forecasts that over 20 years China will need 6,330 new airplanes, worth more than $950 billion. This demand will make China Boeing’s largest commercial airplane customer. In turn, Boeing equity investment in China’s aviation industry is considerable, with Boeing being the leading commercial purchaser. 

Today, more than 50% of the commercial jetliners operating in China are Boeing airplanes. At the same time, more than 8,000 Boeing airplanes fly throughout the world with parts and assemblies built by China. China has a role on every one of Boeing’s commercial airplane models — 737, 747, 767, 777, and the newest and most innovative airplane, the 787 Dreamliner. 

Analysis 

Boeing's latest global industry report predicts airlines will need 42,700 aircraft over the next 20 years, up 3% on last year's forecast. Boeing valued the sales at $6.3 trillion at today's prices. The closely-watched report was unveiled on day two of the Farnborough Airshow, where more orders were announced. 

Boeing’s commercial marketing chief, Randy Tinseth, told a press conference at the Farnborough airshow that he expected China to overtake the US as the world's largest domestic air travel market within 10-15 years. 

Mr. Tinseth also said that demand for cargo aircraft would also increase on the back of e-commerce, with Chinese traders and consumers accounting for the biggest single rise. However, Mr. Tinseth declined to comment on whether Boeing's growth in China could be hindered by a trade war. "We are going to focus on what we can control," he said.

Boeing's sales forecast for the next two decades predicts a 5% rise to 31,360 in demand for single-aisle aircraft, such as the Boeing 737 and Airbus A320 families, which are popular with low-cost airlines. Mr. Tinseth also added that, “Sales in the larger, wide-bodied bracket are expected to fall by just 140 to 8,070 aircraft over the next 20 years, but only because longer-range single-aisle jets were eating into the market.”

Boeing trimmed its forecast for the regional jet fleet to 2,320 deliveries. Competition in this sector is expected to intensify, as Airbus has taken over Bombardier's C-Series aircraft programme and Boeing is buying Embraer.

On Tuesday, Russian airline Volga Dnepr committed to buying Boeing freight aircraft worth $11.8bn at list prices, while Airbus announced a provisional deal with an unnamed customer for 100 of its A320 jets. And US aircraft leasing company Air Lease Corp announced a commitment to order as many as 78 Boeing single-aisle and wide-body airplanes in a deal valued at $9.6bn at catalogue prices.

Despite trade tensions, rising oil prices, and hikes in interest rates, the Boeing forecast suggests no end to the near-decade long boom in aircraft sales. The production lines at Boeing and its European rival Airbus are already booked up for years ahead. 

Assessment

Our assessment is that the prospects of China surpassing US as the world’s largest domestic air travel market will lead to Boeing and their competitors increasing production of their single-aisle jetlines to meet the demands of their Chinese customers. We feel that Europe and the US’s influence on the aviation market will eventually wane. We believe that the ongoing trade conflict with China could affect US aerospace companies adversely.

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