Why Is A China Plant Important For Boeing?
Post# of 22940
Posted On: 05/01/2016 11:27:01 AM
Why Is A China Plant Important For Boeing?
Great Speculations
Buys, holds, and hopes
Opinions expressed by Forbes Contributors are their own.
Trefis TeamTrefis Team, Contributor
Boeing will build an aircraft completion center in China for 737 aircraft, marking the company’s first plant outside the U.S., and a rather important one. Boeing’s key rival – Airbus – already has a final assembly line operational in China and it has helped it gain market share in the region. China will need airplanes worth $1 trillion, reflecting nearly half of the total airplane deliveries in Asia-Pacific region in next two decades. Boeing wants to grab a significant share in such huge market and this new plant will help it scale up airplane deliveries in the region. On that note, we discuss the China airplane market and why is it important for Boeing.
See our complete analysis of Boeing here
China Is A Mammoth Market For Airplanes
Demand for new airplanes in China is primarily driven by low cost carriers (LCCs), which have been successful in other regions, including North America and Europe. LCCs have led to growth in air passenger traffic and this has fared well for airplane manufacturers, such as Boeing and Airbus, in the past. Lower fares offered by these carriers have made air travel more affordable for a larger population, fueling growth in air passenger traffic. A similar low-cost-model is being employed by China among other emerging markets and this is likely to boost air traffic in coming years. In turn, this higher passenger traffic will require a larger airplane fleet. Now, the China market is different from North America or Europe, where demand is for replacing old aircraft with new ones; while in China, there is growing demand to expand the fleet to cater to the rising air traffic. Given these factors, Boeing has a huge potential market in China to drive growth in its airplane sales. Boeing now sells one in three 737s in China, and one in four of its models overall, highlighting how big this market already is for Boeing. Going forward, Boeing estimates China will need 7,210 airplanes worth around $1 trillion in next 20 years. Passenger traffic and air cargo is projected to grow at an average annual rate of around 7% during the same period.
Growing Competition Is A Concern But The New Plant Will Help Ramp Up Deliveries And Enable Boeing To Compete Better
While there is a strong demand outlook for airplanes in China, Boeing faces growing competition with China’s Comac, along with Airbus, which has managed to gain market share in the region with its final assembly line. Looking at Comac, its C919 is a single-aisle airplane designed to seat between 156 and 174 passengers, making it versatile for several routes. In this segment, Boeing has its highly successful 737 series and Airbus has its A320 series. While Comac faces a tough challenge in establishing itself against such successful airplane models, it will likely benefit from an element of state ownership, with regional airlines placing more orders for C919. Comac’s order book currently stands at over 500 airplanes, primarily from various Chinese airlines.
Boeing’s new plant in China will be a final assembly line, primarily to reduce pressure on the U.S. plant, which plans to ramp up deliveries in the coming years. This is important because Boeing has a massive order backlog (roughly $500 billion) and it receives a significant portion of its payment at the time of airplane delivery. The company has been aggressive in ramping up airplane deliveries in the past and Boeing’s global market share in commercial airplane deliveries also improved from 31% in 2008 to 45% in 2014 (see – Boeing Will Sustain Its Current Market Share In Commercial Airplane Deliveries).
Boeing’s commitment for setting up a completion plant in China is likely to follow with a huge order from the region. The recent announcement was for 300 airplanes valued at $38 billion, but a bigger order will likely follow. With this new assembly line, Boeing will be able to increase its delivery rate in the China and compete better with Airbus, along with Conac, which is steadily gaining orders from China-based airlines.
Great Speculations
Buys, holds, and hopes
Opinions expressed by Forbes Contributors are their own.
Trefis TeamTrefis Team, Contributor
Boeing will build an aircraft completion center in China for 737 aircraft, marking the company’s first plant outside the U.S., and a rather important one. Boeing’s key rival – Airbus – already has a final assembly line operational in China and it has helped it gain market share in the region. China will need airplanes worth $1 trillion, reflecting nearly half of the total airplane deliveries in Asia-Pacific region in next two decades. Boeing wants to grab a significant share in such huge market and this new plant will help it scale up airplane deliveries in the region. On that note, we discuss the China airplane market and why is it important for Boeing.
See our complete analysis of Boeing here
China Is A Mammoth Market For Airplanes
Demand for new airplanes in China is primarily driven by low cost carriers (LCCs), which have been successful in other regions, including North America and Europe. LCCs have led to growth in air passenger traffic and this has fared well for airplane manufacturers, such as Boeing and Airbus, in the past. Lower fares offered by these carriers have made air travel more affordable for a larger population, fueling growth in air passenger traffic. A similar low-cost-model is being employed by China among other emerging markets and this is likely to boost air traffic in coming years. In turn, this higher passenger traffic will require a larger airplane fleet. Now, the China market is different from North America or Europe, where demand is for replacing old aircraft with new ones; while in China, there is growing demand to expand the fleet to cater to the rising air traffic. Given these factors, Boeing has a huge potential market in China to drive growth in its airplane sales. Boeing now sells one in three 737s in China, and one in four of its models overall, highlighting how big this market already is for Boeing. Going forward, Boeing estimates China will need 7,210 airplanes worth around $1 trillion in next 20 years. Passenger traffic and air cargo is projected to grow at an average annual rate of around 7% during the same period.
Growing Competition Is A Concern But The New Plant Will Help Ramp Up Deliveries And Enable Boeing To Compete Better
While there is a strong demand outlook for airplanes in China, Boeing faces growing competition with China’s Comac, along with Airbus, which has managed to gain market share in the region with its final assembly line. Looking at Comac, its C919 is a single-aisle airplane designed to seat between 156 and 174 passengers, making it versatile for several routes. In this segment, Boeing has its highly successful 737 series and Airbus has its A320 series. While Comac faces a tough challenge in establishing itself against such successful airplane models, it will likely benefit from an element of state ownership, with regional airlines placing more orders for C919. Comac’s order book currently stands at over 500 airplanes, primarily from various Chinese airlines.
Boeing’s new plant in China will be a final assembly line, primarily to reduce pressure on the U.S. plant, which plans to ramp up deliveries in the coming years. This is important because Boeing has a massive order backlog (roughly $500 billion) and it receives a significant portion of its payment at the time of airplane delivery. The company has been aggressive in ramping up airplane deliveries in the past and Boeing’s global market share in commercial airplane deliveries also improved from 31% in 2008 to 45% in 2014 (see – Boeing Will Sustain Its Current Market Share In Commercial Airplane Deliveries).
Boeing’s commitment for setting up a completion plant in China is likely to follow with a huge order from the region. The recent announcement was for 300 airplanes valued at $38 billion, but a bigger order will likely follow. With this new assembly line, Boeing will be able to increase its delivery rate in the China and compete better with Airbus, along with Conac, which is steadily gaining orders from China-based airlines.
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