Who Will Rule China's Skies: Boeing or Airbus?

In its 2014-2033 market outlook, Boeing (BA 1.51%) has predicted that China's commercial airplane fleet size will triple over the coming two decades -- growing from 2,310 airplanes in 2013 to 6,930 in 2033. All market indicators are pointing toward an era of epic growth in the country's aviation market, fueled by its wave of urbanization, liberalization of policies, and economic improvement.

Understandably, Boeing and its European peer Airbus (EADSY -4.02%) don't want to let this opportunity pass and are busy formulating their China strategy. The aerospace majors' success in this crucial market could decide the future ruling champion of the global commercial aviation market. Here's the latest performance report on Boeing and Airbus in China.

Boeing 737-800. Source: Wikimedia Commons.

China could be an enormous market
According to Boeing's report, China accounted for 11% of the global commercial aircraft fleet of 20,910 in 2013. This makes it the most important region after North America, which held nearly 32% of the market, and Europe, which held 21%. Both the airplane majors have performed more or less on par in China, with Airbus having a small lead in terms of total orders.

Source: Boeing and Airbus.

But this could be just the beginning. China's aviation industry has remained underdeveloped for a long time. Its airspace has been mostly controlled by the military and there weren't enough airports or trained civilian pilots, and the industry lacked a sound regulatory framework. This scenario is changing fast, with the Chinese government taking initiatives like building several airports and easing restrictions. Two-thirds of all the airports under construction in the world today are in China.

Boeing says China will require 6,020 new planes worth $870 billion over the coming two decades. This is equivalent to the market value of deliveries to North America during the same time. As investors can see from the chart below, this market is slated to be huge.

Source: Boeing.

Anybody's game
The Boeing report mentions that roughly 65% of China's traffic growth will come from domestic travel, 16% from destinations in Southeast Asia, and the remainder from other international locations. So, the incremental demand will be tilted toward short-haul single-aisle planes, though wide-bodies, too, will attract buyers and help open new markets. The chart below gives the breakdown of total orders received by Boeing and Airbus for each aircraft category.

Source: Boeing and Airbus.

Investors can see that the battle is pretty close in the narrow-body segment, while Airbus has a modest lead in wide-bodies. But it would be fair to say that market is evenly balanced between the two aircraft majors and it could be anybody's game over the coming decades.

Trying to capture market share with new planes
Boeing and Airbus are coming out with new planes to attract airlines. In the single-aisle space, Boeing is building its upgraded 737 MAX, and Airbus is working on its A320neo by fitting new engines in its best-selling A320 family of planes. Similarly, in the wide-body arena, Boeing is offering its latest clean-slate Dreamliner, and Airbus' A350 is gearing up to enter service later this year. Boeing and Airbus are also upgrading their respective 777 and A330 families of wide-body airplanes to 777X and A330neo, respectively.

As with the existing models, the ordering trends for the new arrivals are also more or less evenly split between the two plane makers.

So far, Chinese airlines haven't ordered too many of the next-generation narrow-body planes. But given that all the new planes offer significant fuel savings and other efficiencies over the current versions, it shouldn't be long before orders gain traction. In the wide-body segment, airlines are leaning more toward the Airbus A350, though the 777X is gaining popularity and Dreamliners continue to find buyers.

Airbus A320neo. Source: Wikimedia Commons.

The recent developments in China indicate significant market expansion over the coming decades, and Boeing and Airbus are keen to monetize the opportunity. Thus far both of the aerospace majors are neck and neck, with Airbus having a slight advantage. Whether Airbus will maintain its incremental lead is difficult to say. But if demand continues to improve as both Boeing and Airbus predict, their investors could all see big benefits.