Skip to Content
Stock Strategist Industry Reports

Skies Clearing for Commercial Aircraft?

Boeing says yes.


Air travel demand as measured by revenue passenger kilometers has been resistant to negative events, including financial crises, wars, and health outbreaks, and has grown at nearly 6% annually over the past 40 years, rising to nearly 5 trillion RPK in 2010 from 0.5 trillion RPK in 1970. For the next 20 years,  Boeing (BA) anticipates air traffic to increase 5% compounded annually, resulting in demand for 33,500 new aircraft worth more than $4 trillion. Competitor Airbus sees somewhat less robust demand for the next 20 years, with compound annual traffic growth of 4.8% that leads to new aircraft requirements totaling nearly 27,000 units, although this excludes regional jets. Both operators see the rising middle class and increases in global trade as long-term drivers for new aircraft.

Boeing's mission for its commercial aircraft segment is to convert its immense and growing backlog into revenue and cash flows. Boeing's backlog of 3,988 unfilled aircraft as of April 30 is measured in years of production, not months. The company believes it made a mistake by lowering build rates during the 2008-09 recession, and it is unlikely to repeat such a move should we enter another recession over the near term. The machinist contract signed in 2011 will help execute plans to increase production by nearly 30% over the next three years from early 2012. The company is currently monitoring nearly 1,200 suppliers on a daily or weekly basis. Of the 2,800 employees in Boeing involved with supply chain monitoring, nearly 600 are focused on managing rate increase readiness at suppliers.

Neal Dihora does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.