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Boeing catches Asian flu
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June 18, 1998: 5:57 p.m. ET
Despite possible loss of 90 orders, aircraft giant likes long-term outlook
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NEW YORK (CNNfn) - Asia's financial crisis may cost Boeing Co. 90 aircraft orders over the next five years, but will not affect long-term demand for the company's popular jetliners in other areas of the world, a company report said Thursday.
The finding, made in Boeing's annual "Current Market Outlook", corroborated a view prevalent among industry analysts that the turmoil in Asia has hit Boeing particularly hard as Pacific carriers have either delayed or deferred aircraft orders. No Asian carrier has canceled an order. Boeing controls roughly 60 percent of the global jetliner market, followed by the European consortium Airbus Industrie.
The report said the Asian economic situation is a short-term phenomenon that is likely to result in 150 fewer airplane orders across the industry from 1998 through 2002.
"However," the report said, "in the long term…Asian economies will regain stability and gradually return to previous growth trends."
(Click to view Boeing's one-year intraday stock chart)
The report projected that Asia-Pacific airlines would add new jets worth $427 billion dollars over the next 20 years.
By contrast, Boeing said, North American airlines are expected to buy $332 billion worth of new jetliners over the period, and European carriers, $345 billion.
Boeing delayed releasing the report for about two months amid uncertainty about its Asia business prognosis. These doubts surfaced in the final product -- in a section devoted to air travel and the economy -- even as Boeing sought to minimize them.
"Financial resolutions could come unwound, economic consequences could turn out worse than estimated, and hardships could cause political instability," the report acknowledged. "These things are possible, but less likely than a pause followed by a return to continued growth."
Surging demand for small aircraft
In a significant finding, the report said small aircraft will capture the largest segment of the market over the next two decades, with Asia and the Pacific rim leading the demand curve.
Seven out of 10 airplanes delivered from 1998 through 2017 will be single-aisle airplanes the size of the Boeing 717, 737 and 757. Purchases of airplanes of this size over the next 20 years should account for 43 percent of all money invested in new airplane orders.
Meanwhile, medium-sized airplanes such as the Boeing 767 and 777, will account for a quarter of future deliveries, or 4,360 airplanes. The smallest share of investment will go to 747-style jumbo jets.
"This forecast was the basis for our decision not to build an airplane larger than today's 747," said Bruce Dennis, the vice president of marketing for the Boeing Commercial Airplane Group.
Dennis added: "Unlike our competitor, we think that market forces are moving toward frequency over size. The market is simply too small and too far into the future to risk investing large amounts of money on airplanes larger than the current 747-400."
Dennis was referring to Airbus's efforts to develop an even larger model than the 747, to be called A3XX, by 2004.
A doubling of worldwide fleets
Boeing forecast that global air travel would continue to grow by an average 4.9 percent a year between now and 2017. Worldwide fleets are expected to double in size.
The report projected Asian-Pacific air traffic will grow by an average 6.5 percent annually over the period, as compared with 4.1 for Europe and 2.9 percent for North America. Latin America will become the fastest-growing market, the report said.
Assessing the statistics, Dennis said: "The future market for airplanes clearly is outside the United States."
In its first quarter, Seattle-based Boeing reported net income of $50 million, or 5 cents a share, compared with $540 million, or 55 cents, in the year-ago period. Analysts had forecast profits of 7 cents a share.
Shares of Boeing (BA) ended down 3/16 at 43-15/16 Thursday in composite trading on the New York Stock Exchange.
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