Earlier this week, Boeing (NYSE:BA) released the highly anticipated 2020 version of its long-term market forecast. Not surprisingly, it had to reduce its forecasts for aircraft demand -- particularly in the near-term -- due to the massive impact of the coronavirus pandemic on global aviation. But despite an 11% cut to its estimate of aircraft deliveries over the next decade, Boeing still appears to be underestimating how long it may take for demand to recover fully.

The forecast comes down

In its 2020 commercial market outlook, Boeing said that airlines would need approximately 18,350 new commercial jets over the next decade. That figure represents an 11% cut to its 2019 forecast. Over the full 20-year forecast period, Boeing expects the industry to return to its historical growth trend, creating a requirement for over 43,000 new aircraft.

Digging into the numbers, Boeing expects single-aisle planes (such as the 737 MAX and rival Airbus A220 and A320neo families) to account for 74% of demand over the next decade (13,570 deliveries). Like most industry observers, Boeing expects wide-body demand to recover more slowly. As a result, it projects demand for 3,060 new passenger wide-bodies between 2020 and 2029, or 17% of the overall mix. The remaining 9% is split between regional jets with fewer than 90 seats and freighters.

Is there enough replacement demand?

This summer, the International Air Transport Association (IATA) said that global air travel isn't likely to recover to 2019 levels until 2024. Boeing acknowledges that it will take several years just for airlines to get back to their pre-pandemic size. As a result, it forecasts that 56% of commercial jet demand over the next decade will be for replacements rather than fleet growth. For comparison, fleet growth has accounted for close to 70% of commercial aircraft deliveries in recent years.

A Boeing 737 MAX 9 flying over clouds

A Boeing 737 MAX. Image source: Boeing.

There are about 4,000 jets that are at least 20 years old in commercial service today, according to Boeing. Clearly, those planes will need to be replaced by the end of the decade. Indeed, most are likely to be replaced by 2025, accounting for the bulk of new aircraft demand over the next five years.

But Boeing's forecast implies that the global airline industry will replace over 10,000 jets between 2020 and 2029. It's not clear where the other 6,000-plus units of projected replacement demand will come from. Based on a typical 25-year life span for a commercial airplane, there will be a dip in replacement demand in the second half of the decade, corresponding to weak market conditions 25 years earlier, during the post-9/11 aviation industry downturn.

In fact, between 2001 and 2005, Boeing delivered fewer than 1,800 commercial jets (as did Airbus). Of course, airlines sometimes retire jets well before the 25-year mark. But even with some early retirements, replacement demand could fall short of Boeing's estimate by 1,000 to 2,000 units over the next decade.

Fleet growth demand could also fall short

It's much harder to predict how much demand there will be for fleet growth over the next decade. But if the IATA's forecast is accurate and demand only returns to 2019 levels in 2024, that would imply virtually zero demand for global fleet growth (on a net basis) in the first half of the decade. The global fleet would have to grow at a compound annual rate of 6% to 7% between 2025 and 2029 to generate the level of fleet growth demand that Boeing projects. That would be ahead of the historical 5% growth trend for air travel demand.

Additionally, airlines have been steadily shifting their narrow-body fleets toward larger aircraft like the A321neo and 737 MAX 10 and squeezing more seats onto each aircraft. Those trends will likely continue. As a result, airlines can meet 5% annual demand growth with perhaps 4% annual fleet growth.

In short, Boeing's forecasts for both fleet growth and replacement demand seem aggressive. To be fair, the company noted that its current outlook "faces more near-term uncertainty than any forecast in recent memory." Boeing has also implemented cost-cutting to address weaker demand, including job cuts and its recent decision to consolidate production of its 787 Dreamliner in South Carolina.

Nevertheless, it's worrisome that Boeing is clinging to an aggressive long-term demand forecast. Investors should treat management's projections for the pace of a recovery with caution. Boeing seems to expect aircraft demand to surge to record levels within a few years after the pandemic ends. The market could take much longer to recover, though, leading to a prolonged period of depressed earnings for Boeing.