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Boeing Sees $3.1 Trillion In China Aircraft, Services Demand Over 20-Year Period
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Boeing Sees $3.1 Trillion In China Aircraft, Services Demand Over 20-Year Period

Boeing Co. said it expects China’s demand for airplanes and services over the next 20 years to be higher than previously forecast, as the planemaker sees strong growth in the country’s aviation market despite Covid-19 near-term challenges.

Boeing (BA) estimates China’s airlines to buy 8,600 new airplanes over the next 20 years, amid expectations for a robust recovery in the aftermath of the COVID-19 pandemic. The rolling forecast is 7% higher than last year’s estimate for 8,090 planes. According to the new forecast, the planes would be worth $1.4 trillion and commercial aviation services would be valued at $1.7 trillion.

The ailing US planemaker projects that China’s annual passenger traffic will grow 5.5% over the next 20 years as the country should lead passenger travel globally in the next few years supported by a rapidly growing middle class, increased economic growth and growing urbanization.

Since 2000, China’s commercial jet fleet has expanded sevenfold, while about 25% of all aviation growth worldwide in the last decade has come from the world’s second-largest economy. Boeing believes this trend will continue over the next 20 years.

“While COVID-19 has severely impacted every passenger market worldwide, China’s fundamental growth drivers remain resilient and robust,” said Boeing’s Richard Wynne. “Not only has China’s recovery from COVID-19 outpaced the rest of the world, but also continued government investments toward improving and expanding its transportation infrastructure, large regional traffic flows, and a flourishing domestic market mean this region of the world will thrive.”

Specifically, Boeing sees the increased growth to be driven by continued high demand for single-aisle airplanes and China’s expanding share of passenger widebodies to support international routes, along with a large replacement cycle as China’s fleet matures. Over the next 20 years, the planemaker forecasts that China will need more than 6,450 new single-aisle airplanes and 1,590 widebody airplanes, which will account for 18% of deliveries during the 20-year period.

Meanwhile, Boeing recently said that it expects global passenger traffic to return to 2019 levels in only about 3 years. As a result, the planemaker will need to continue with overall staffing cuts through natural attrition as well as voluntary and involuntary workforce reductions. (See BA stock analysis)

Shares in BA have plunged 44% year-to-date, but analysts have a cautiously optimistic Moderate Buy consensus on the stock. That’s with an average analyst price target of $182.94, indicating shares are more than fully priced at current levels.

Susquehanna analyst Charles Minervino just raised the stock’s price target to $220 from $198 and maintained a Buy, amid optimism that Boeing could be getting US regulatory recertification for its grounded 737 MAX aircraft by November 18.

The regulatory nod would raise the fundamental case for the company, according to Minervino. In addition, recent news on the progress of a potentially effective COVID-19 vaccine is likely to help lift travel halt restrictions and bring back aircraft deliveries.

Boeing stock analyst recommendation

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