Boeing Forecasts Large Demand for More Fuel Efficient Aircraft

October 11th, 2011 by Lauren Todd
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Boeing (NYSE:BA) made significant sales projections last week amidst speculation that AMR Corporation (NYSE:AMR), parent company of American Airlines, may be facing bankruptcy and restructuring. Most of the airline industry stock prices took a dip with the news of the AMR bankruptcy. Though Boeing currently has an order of 460 planes from AMR, Boeing is undeterred. A recent press release sites that if AMR drops the orders, Boeing is confident the orders will be picked up by another company.

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Fuel Efficiency Drive Underlies Strong Boeing Outlook

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Boeing’s most significant announcement last week was a forecast of 41 percent growth in airplane demand for North American commercial jet sales by 2030 – totaling approximately 7,500 airplanes. Aging planes are expected to be replaced by more fuel-efficient models, behind the initial cost of the airplane, fuel costs are the second largest cost associated with airplanes. Rising and volatile fuel prices contribute to the demand for more fuel-efficient airplanes.

With 52.8% of the stock price originating from Commercial Airplanes, the forecast is good news for Boeing and Boeing investors.  Though growth is expected to be primarily in single-aisle aircraft, long-haul airplane traffic is anticipated to continue to grow at approximately 4.5% per year as well.  Additionally, Boeing has two new commercial airplanes taking flight this quarter – the 747-8 and the Dreamliner 787.

The success of these two airplanes can only aid Boeing’s current position in the commercial airplanes segment (replacement of aging jets is the primary cause of North American demand forecast).  Additionally, Boeing was awarded the $3.1 million “Greener Skies” grant from the FAA, further supporting the Commercial Airplanes segment of the Boeing stock price.

Boeing shares are currently around $64 while the Trefis price is at $90.91, implying around 40% upside.

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