Market outlook: Manufacturers look to Asia for future profits

Three of the world’s major aircraft manufacturers have released new, 20-year market forecasts. All agree that Asia will be a key growth driver

1st Sep 2010


Airframe manufacturers Boeing, Bombardier and Embraer all agree that the Asia-Pacific market will be the primary driver for new-aircraft demand in the next two decades, according to their latest forecasts.


Brazil’s Embraer says the Asia-Pacific region, including China, will account for more than a third of global airline traffic within 20 years, while markets in the Europe and North America will see their combined share fall from last year's 57 percent to 44 percent. China will lead growth in traffic, measured in revenue passenger-kilometres (RPK), expanding at a rate of 7.3 percent per annum.


“Emerging market opportunities in China, India, and other developing regions should provide a powerful impetus to the global industry’s recovery,” says Bombardier Aerospace's new 20-year forecast. “While both business- and commercial-aircraft markets were affected by the recession, [economic] indicators show improvement and there are positive signs for the global industry.”


According to Boeing’s market outlook, airline traffic growth will accelerate in the short term, as world economies start to recover from recession in the next two or three years. Overall, airlines will need 30,900 new-build commercial aircraft, including 740 freighters, during 2010-29.


The US manufacturer predicts international scheduled passenger traffic will grow by 5.3 percent per year in the period, while Brazilian counterpart Embraer is expecting a slightly lower 4.9 percent annual increase (see Tables 1 and 2). With traffic having grown at around 5 percent annually for the past three decades – and expected to resume that rate from 2015 – Boeing Commercial Airplanes marketing Vice-President Randy Tinseth attributes the slightly higher 5.3 percent rate to last year’s reduced traffic base caused by the recession.


Conditions ‘improving, unstable’


Boeing analysts predict that new deliveries over the next two decades will be worth US$3,600 billion, as global economies recover. “Improving, yet still unstable conditions,” will be reflected in strong demand for both new and replacement aircraft. Carriers will focus on “more flights [with] more-efficient, rather than significantly larger, airplanes”, the manufacturer says.


For aircraft of the capacity of the Boeing 747 or larger, the US company sees a US$220 billion market for 720 aircraft, mostly replacements for existing aircraft. Anticipated demand for 7,100 widebody and 21,160 narrowbody machines will be worth about US$1,630 billion and US$1,680 billion, respectively. A need for 1,920 regional jets, valued at US$60 billion, makes up the balance of the 20-year requirement.


“The market is doing much better than last year, but there are still challenges. Airline revenue and yields are up, but fuel prices remain volatile,” Tinseth says. Demand will be driven by “economic growth from regions with diverse airplane needs. The proliferation of low-cost carriers, emerging markets such as China, India, and South-East Asia, and continuing instability of fuel prices” means that the single-aisle sector will dominate the market.


Regionally, the Asia-Pacific displays “the most robust market gains, with China leading the way”, according to the executive, who says a third of all traffic touches the area. Tinseth suggests that continued strong growth will mean that “almost 43 percent of [2029] traffic will be to, from, or within" the Asia-Pacific region. Local carriers will be the largest widebody consumers, accounting for 40 percent of demand.


Fast-growing Middle East markets will remain “very strong”, with operators benefiting from aircraft performance, demographics, geography, and “well-coordinated growth and investment plans”. Europe and North America will provide “substantial” requirements for machines to replace old, less-efficient designs. Worldwide, Tinseth sees demand as becoming increasingly balanced, following “robust” growth in emerging markets.


The world's freighter fleet is predicted to increase from 1,750 to 2,980 aircraft. Demand for 2,490 extra machines will include some 740 new-build freighters, valued at US$180 billion, with 1,750 passenger aircraft being converted for cargo use. Boeing sees requirements for 520 new large freighters (over 80 tonnes payload) and 210 medium cargo aircraft (40-80 tonnes). Very few new “standard-body” units (up to 45 tonnes) are expected.


Cargo traffic growth


Cargo traffic will grow annually at an average 5.9 percent during 2010-29, with an increase of “nearly 14 percent” this year over 2009's depressed level. “The inclusion of [2010] high-traffic growth levels, following recession, is driving our cargo forecast upward, [but industry] strength and growth will continue to be driven by sound fundamentals: speed and reliability, consumer product innovation and global industrial interdependence,” concludes Tinseth.


Analysts at Canada’s Bombardier see absolute numbers of airliner deliveries remaining weighted towards Europe and North America, but perceive a move in overall regional shares.


“This shift highlights the growing role of emerging aviation markets, particularly China,” the manufacturer says. “It is estimated that China’s fleet of 20- to 149-seat commercial aircraft will become the third largest, closely behind Europe and the USA.”


China is forecast to receive 18 percent of such deliveries, with India taking 5 percent and growing to make up 4 percent of the global fleet, compared with 1 percent today. In contrast, Europe's fleet share will decline from the current 28 percent to 19 percent.


For the commercial-aviation market, the manufacturer notes that there is a growing middle-class population contributing to growth, with low-cost carriers (LCCs) expanding to support increased demand for low-fare, point-to-point service. As deregulation and developing private operations stimulate this growth, the region is expected to receive 1,640 aircraft (or 13 percent of demand) in the 20- to 149-seat sector during 2010-29.


Bombardier says India is a key driver of economic growth in Asia, with its fleet set to grow from about 120 aircraft now to 650, as the country absorbs 600 deliveries – about 36 percent of the regional total in the period. Of the regional total, some 700 deliveries (or 43 percent) will be 60- to 99-seat machines, while 920 units (or 56 percent) will carry 100-149 passengers.


Meanwhile, China's growing economic power is evident throughout its aviation industry, according to the market forecast. “Manufacturing, repair and supply organisations are well entrenched in China [where] growth continues to progress in concert with development of its aviation infrastructure,” Bombardier says.
The prospect of the country's air-traffic management system coming under non-military control, as envisaged by the Civil Aviation Administration of China (CAAC), will “likely improve access to Chinese airspace and airports for commercial airlines”.


Bombardier expects China's 20- to 149-seat fleet to number 2,550 aircraft by 2029, making it the third-largest after North America and Europe – up from its current sixth place. With double-digit growth in domestic capacity last year, there was a huge, 265 percent increase in the 60- to 99-seat sector. Meanwhile, the manufacturer predicts delivery of 2,260 aircraft in the 20- to 149-seat market in the next 20 years, which would represent 18 percent of global demand.


High airline traffic growth drives China's fleet requirements for larger aircraft, with 62 percent of delivered aircraft having capacity for 100-149 passengers, the manufacturer says.


Business aircraft


Bombardier business aircraft salesmen will also be encouraged by their market analysts' view of 20-year demand in the Asia-Pacific region. “Business aviation penetration in the fastest-expanding world economies, China and India in particular, is accelerating,” the company says.


Following “exceptional” performance in the last recession, China is expected to continue to lead world growth, with Bombardier looking forward to fewer barriers in that market. “Restrictive airspace access, high import taxes, a shortage of small airports, and high operating costs are among the factors which explain an installed base of [only] 100 business jets,” the manufacturer says.


The manufacturer says China's “strong commitment to build new infrastructure and recent improvements to flight-planning regulation bring hope that private aviation could blossom [there] over the next ten years”. Accordingly, the Chinese business-jet fleet is expected to grow at a rate of 20 percent annually in the period and to support a 700-strong fleet by 2019 as it absorbs some 600 deliveries.


With a fleet of 125 aircraft, India enjoys "relatively low" business-jet penetration, says Bombardier, predicting that sales will accelerate progressively in response to economic growth and wealth creation. The fleet is expected to grow by some 13 percent per year in the coming decade. Delivery of 325 new machines is expected to expand the fleet to 440 aircraft by 2019.


“Currently, [the] sector is not living up to its full potential due to a lack of aviation infrastructure, stringent government regulations, long [import] procedures, and strict bank regulations,” according to the manufacturer.


Looking more broadly across Asia and Oceania including individual markets such as Indonesia, Japan, Malaysia, Singapore, South Korea, and Thailand, Bombardier foresees 500 new-aircraft deliveries during 2010-19, taking the fleet to some 780 aircraft “despite hurdles such as the high handling costs across the region’s airports”.


Global demand


Overall, the Bombardier market forecast sees 20-year demand for 12,800 new airliners worth US$612 billion in the 20- to 149-seat sector, an increase of 400 units from last year’s forecast. Some 200 of the aircraft will offer fewer than 60 seats, while 6,700 will accommodate 100-plus passengers. Bombardier analysts also predict a need for 26,000 business jets worth US$661 billion in the “light to large” market segments in which it competes.


Embraer's forecast for small-jetliner deliveries during the next two decades sees overall annual traffic growth continuing at 4.9 percent, to reach some 2,700 billion RPK, up 170 percent over last year's level of activity. Growth in the Asia-Pacific, Latin America, Russia and the Commonwealth of Independent States (CIS) will average 6 percent per year. Traffic in Africa will increase at about 5 percent, ahead of Europe and North America's 3.5 percent growth rates.


Embraer forecasts that the world fleet of 30- to 120-passenger jets will rise in number from 4,285 last year to 7,780 in 2029, by which time about 21 percent of current aircraft (905 jets) will remain in operation. The manufacturer foresees demand for 6,875 new aircraft, worth an estimated US$200 billion. Of these, 2,895 are planned for delivery during 2010-19, and the remaining 3,980 units in the subsequent ten years.


Future requirements are split almost evenly between aircraft needed to support market growth and those that will replace existing machines. Embraer estimates that 51 percent of the total (or 3,495 units) will be needed to provide extra capacity, while 49 percent (3,380 units) will take the place of ageing aircraft. Some 1,100 such jets in scheduled service are over 15 years old and will need to be replaced.


Fifty-seat regional-jets will continue to feed hubs and to serve smaller communities in Europe and the USA, while also supporting aviation development in areas such as Africa, Mexico, Russia & the CIS, and South America, says Embraer. Aircraft with 60-120 seats will be needed to replace old equipment, develop new markets, and allow carriers to grow by smaller seat increments.

[Table 1]

Boeing current market outlook 2010-29


Size Units Value ($)

Size
Units Value ($)
Regional jets 1980 60 billion
Single-aisle 21160 1680 billion
Twin aisle 7100 1630 billion
'Large" 720 220 billion
Total 8726 3600 billion

 


(Source: Boeing Commercial Airplanes)

[Table 2]

Embraer commercial-jet delivery forecast 2010-29

Seats
Units 2020-29
2010-29
30-60 50 425 475
61-90 1140 1375 2515
91-120 1705 2180 3885
Total 2895 3980 6875

 

(Source: Embraer)
 

Asian Aviation at a glance