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Why the Aircraft Market Seems Set to Surge

Daniel James
October 1, 2013

Perhaps one of the biggest stories in the last few years has been the resurgence of airlines. After years of struggle, the industry's gained a much-needed boost from a burgeoning world population, the explosion of global trade, low fuel prices, and synergy-related advantages.

At the same time, this has increased demand for commercial aircraft across the board, especially in Asia. A recent statement from the European aircraft manufacturer formerly known as EADS (NASDAQOTH: EADSY) predicts a surge in demand over the next few decades.

Demand picking up
EADS, which is in the process of changing its name to Airbus, released a statement on Tuesday revising its long-term forecast for the market up 3.7% from previous estimates. The company now expects the industry to need jets worth $4.4 trillion over the next 20 years -- some 29,226 passenger and freight airplanes in all.

Domestic air travel is expected to grow in India and China especially. According to EADS, the Asia-Pacific region will have overtaken Europe and North America in terms of traffic by 2032, with the region accounting for around 36% of new passenger planes. Low-fare airlines are expected to account for the majority of sales, with single-aisle jets making up around 71% of orders.

So who is buying all these jets? Deutsche Lufthansa (NASDAQOTH: DLAKY), for one. The largest European carrier by passengers carried, and still EADS' largest customer, Lufthansa recently signed a deal to purchase 34 Boeing (NYSE: BA) and 25 Airbus planes worth around $19 billion in total.

Of this amount -- the largest investment in Lufthansa's history -- EADS will net about $8 billion. Lufthansa claims the new fuel-efficient jets will boost efficiency while making its fleet more environmentally friendly.

China is also driving demand. Boeing earlier this month estimated that the world's most populous country will need 5,580 new jets costing $780 billion by 2032. Boeing alone expects to more than double its deliveries in the region this year. Orders are also streaming in for Airbus' A320s, with a recently announced Chinese commitment for 100 of the fuel-efficient jets. The deal is currently awaiting approval from the Chinese government.

Clash of the titans
As the two largest producers of airplanes in the world, Boeing and EADS are locked in a perpetual struggle for world domination. Last year, Boeing overtook EADS to reclaim the No. 1 spot for the first time in a decade, despite problems surrounding the launch of its much-discussed 787 Dreamliner. The race is fairly tight, with Boeing delivering 537 jets for the period versus Airbus' 516.

For its part, Boeing has forecasted global sales of $4.8 trillion by 2032, although this figure includes some 2,020 regional jets that were not incorporated into Airbus' expectations. In any case, looking at earnings, one can't fault the company for a lack of consistency, quarterly EPS having beaten expectations for at least 14 consecutive quarters, while Airbus has beaten for six consecutive quarters. All in all, things look fairly bright for aircraft makers.

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