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Boeing Makes a 36,770-Airplane Promise

By Rich Smith - Jul 12, 2014 at 11:46AM

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That's how many aircraft Boeing sees being sold worldwide over the next 20 years. But how much money will the company make from these planes?

Boeing could sell thousands of new 777X airliners over the next 20 years. Photo: Boeing.

36,770 new airplanes.

That number grabbed headlines around the world Thursday morning when Boeing ( BA -2.74% ) updated its projection of overall aircraft demand around the globe. Boeing said there's a market for 36,770 airplanes of all shapes and sizes over the next two decades. That's 4.2% greater demand for aircraft than the company estimated just one year ago, and it suggests roughly $5.2 trillion worth of airline dollars will be up for grabs by the major airplane builders.

But what do these fabulously large figures actually mean to investors? Let's find out.

Boeing math
Last year, Boeing delivered 648 commercial airplanes capable of carrying more than 100 passengers. By Boeing's estimation, demand for such jets will make up roughly 90% of the market over the next 20 years -- and last year, Boeing claimed 43% market share among such airplanes.

Boeing's market share among larger, wide-body aircraft is even more impressive. Popular as the company's 737 narrow-body may be, Reuters estimated that within this segment, Boeing owns about 65% of the market for such bigger, more expensive aircraft (200-plus passengers). These aircraft, which include such proven performers as Boeing's 777, amount to about 23% of all airplanes in the company's projection for airplane sales between 2014 and 2033 -- nearly one plane out of every four that will be sold.

China is hungry for more Boeing airplanes. Photo: Boeing.

What it means to Boeing
How will these numbers show up on Boeing's income statement, and on its bottom line, over the years to come? Looking 20 years out, this is obviously an exercise in guesswork. So let's be conservative and say that Boeing maintains 43% -- not 65% -- overall market share for commercial passenger and cargo jets of all shapes and sizes.

A 43% share of $5.2 trillion in airplane sales implies that over the coming two decades, Boeing will reap $2.24 trillion in revenue from the sale of commercial aircraft -- averaging $112 billion annually.

For comparison, last year Boeing's commercial airplanes division did just under $53 billion in business -- less than half the average sales that the company could capture over the next two decades. And S&P Capital IQ data shows that Boeing's commercial plane sales over the last 10 years averaged just under $33.6 billion per year, less than a third of what Boeing could reap over the next 20 years.

Profit-wise, Boeing could do even better. At the airplane maker's current operating profit margin of 10.9%, $2.24 trillion in commercial airplanes revenue should produce about $245 billion in profit for the company -- $12.2 billion per year. That's nearly three times the $4.6 billion that Boeing earned from all of its divisions last year -- including space, military aircraft, and maintenance and upgrades on these aircraft -- combined.

What it means for everybody else
The news elsewhere is both better and worse. Commenting on the company's projections, and in particular on its market-share dominance in wide-bodied aircraft, Boeing Vice President of Marketing Randy Tinseth opined that "if Airbus doesn't do something with their product strategy, they're headed to 30-35 percent market share" in deliveries of next-generation twin-aisle aircraft going forward.

Tinseth should know whereof he speaks -- since it's his employer taking away so much of Airbus( EADSY -0.94% ) market share. That said, Forbes pointed out earlier this year that Brazilian plane maker Embraer ( ERJ -2.10% ), Canada's Bombardier ( BDRAF 7.20% ), and China's COMAC are all "set to enter this market over the next few years."

The upshot for investors
This week's forecast projects blue skies and sunny weather for Boeing, while the horizon appears increasingly cloudy for Airbus. But Boeing's success may be the least of the European plane maker's problems. With a pack of hungry upstarts close on its heels, Airbus had better "watch its six."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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The Boeing Company Stock Quote
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