China will buy a lot of 737s over the next 20 years -- but that's not the point. Image source:Boeing.
Boeing made big headlines in August when it announced its latest estimatesfor the truly massive demand for airplanes arising in China:
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- 6,330 new airplanes to be sold over the next 20 years
- 16.6% of all planes sold worldwide to be sold in China
- $950 billion in revenue for the sellers
Those are some big numbers, and it's understandable that Boeing would ballyhoo them. As my fellow Fool Rich Duprey recently pointed out: "Last year, Boeing delivered 155 aircraft to China, or 21% of its global deliveries, and so far in 2015, [China] has accounted for a similar percentage." This suggests Boeing is grabbing an outsize share of the supersize Chinese market for commercial airplanes.
And yet, while China certainly means big business for Boeing, there's another market that may be even more lucrative: the Mideast.
Image source: Boeing.
Look Mideast, young manFollowing up on its Chinese announcement, Boeing released a new estimate earlier this month for Middle East airplane demand. According to this estimate, Mideast buyers are expected to spend $730 billion on 3,180 airplanes (not just from Boeing, but from all manufacturers -- including Boeing rival Airbus , and Chinese local manufacturers) over the next 20 years.
On the face of it, that's not as big a number as the one posited for China in August. In terms of mere unit sales, Mideast demand is only about half as strong as Chinese demand. But here's the thing: Per capita plane demand in the Mideast is actually stronger than in China.
Here's how the math works: China very famously boasts a population of 1.4 billion potential travelers. The entire Mideast, in contrast, has fewer than 360 million inhabitants, according to data from The World Bank. In other words, the Mideast, a region with just 25% of China's population, is expected to buy 50% as many planes as China.
Put another way, each potential Mideast traveler is worth roughly twice as many (fractions of) plane sales to airplane builders like Boeing and Airbus. And that's not all.
More room in the overhead binsWhile Boeing expects Mideast buyers to buy "only" 50% as many planes as China does, the value of those planes will be fully 77% as big as the value of the planes being purchased in China.
According to Boeing, China will need to buy 4,630 new single-aisle airplanesby 2034, and 1,500 widebodies. To put that in context, the list price on Boeing's popular 737 MAX 8 single-aisle jet is $110 million. In contrast, Boeing's upcoming 777-9X will seat as many as 425 passengers-- and cost $400 million apiece. (Small regional jets seating 90 passengers or less, a class of plane Boeing does not serve, will account for just 3% of Chinese demand -- about 200 aircraft.)
Airbus stats are similar, by the way -- a $106 million list price for an A321neo single-aisle, versus $428 million for Airbus' biggest bird, the A380. Simply put, the bigger the plane, the more it costs.
Now contrast these numbers with what Boeing foresees for the Middle East. There, single-aisle plane demand is expected to be just 1,410 planes -- so far, fewer of these cheaper aircraft will be sold there than in China. Larger, more expensive widebodies, on the other hand, will make up a much greater proportion of Mideast plane sales -- 1,740 units total. (The remaining 60 planes expected to be sold in the Mideast will be small regional jets.)
Here's a side-by-side comparison of precisely how Boeing sees sales breaking out:
Keep your eye on the ballSo, you can see how each generic unit of "airplane" sold into the Middle East, over the next 20 years, is likely to generate much more revenue for Boeing (or Airbus) than a similar number of generic airplanes sold into China. The Mideast planes will be fewer -- but bigger and more lucrative for the company that sells them.
The upshot for investors: China is an absolutely vital market for airplane sales for both Boeing and Airbus, but it pales in significance to the Mideast.
The article China? Phooey! Boeing Says This Market Is Nearly as Big originally appeared on Fool.com.
Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 275 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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