And yes, I said "over the next 20 years."
Bad news is no news ...
Investors seem shaken by Boeing's prediction, but to Yours Fool-y, this is the very definition of a non-story. Why?
- First off, because we're talking about a 1.4% decline in airplane demand -- statistically insignificant.
- Second, because according to Boeing, a slight decrease in unit demand isn't going to do a thing to dampen the value of the planes that will be built. Boeing still thinks we're looking at a $3.2 trillion market.
- Third and finally, because I said over the next 20 years.
... because crystal balls are old-tech
Think about that for a minute, folks. Boeing's doing its darnedest to give investors good intel on future demand. But as hedge fund consultant George Muzea has opined, corporate execs have only about a six-month horizon within which they can make accurate predictions. Anything further out, and they're guessing -- just like you and I are.
Need further proof? Check out what General Electric
So I repeat: When Boeing told us last year that it expected to see 29,400 big jets sold through 2027, it was just guessing. It's guessing again when it tells us "29,000 through 2028" this week.
There's no way for Boeing to know for sure what the future holds. On one hand, a growing population and rising affluence in the third world could greatly increase the number of jets we'll need. On the other hand:
- New videoconferencing technologies developed by Cisco
(NASDAQ:CSCO)and the general proliferation of high-quality video and collaboration tools could crimp demand for business travel.
- Continued capacity cuts such as the one Delta
(NYSE:DAL)just announced will certainly affect the need for new planes.
- And that's to say nothing of how jetliner demand will crash when the Vulcans arrive and provide Earth with transporter technology in the year 2020.
Good news, however, is still good news
Now that I've put that story to bed, let's move on to the real news contained in yesterday's announcement. You know -- the one that the mainstream media is ignoring: Boeing's holding the line on prices.
Last week, we discussed the high-stakes bidding war that United Airlines
The company is coming to the right conclusion -- which happens to agree with mine -- all on its own. In a conference expanding on its 2009 current market outlook yesterday, Boeing Marketing VP Randy Tinseth told reporters that Boeing's key objective in this recession is "getting the backlog in place, rather than acquiring new orders."
What that tells me is that Boeing will not compete aggressively on price to secure new airplane sales. Boeing's already done a fine job of lining up roughly five years' worth of backlogged work at prices negotiated back when demand was strong. As a result, it's now operating from a position of strength, in which it does not need to sacrifice profit margins to capture new revenue.
Rather, the emphasis should be -- and, Boeing says, is -- on ensuring that existing orders get delivered on time so as to avoid cancellations. In other words, whatever its forecasts say, what Boeing really must do is execute.
Boeing's not the only blue-chip company making wild and crazy predictions, you know. Read all about what happened when: