777X Strengthens Boeing's Leadership Position In Large Commercial Airplanes

| About: The Boeing (BA)

Boeing (NYSE:BA) recently launched an upgraded version of its wide body 777 airplane - the 777X - to further strengthen its leading position in the wide body commercial airplane segment. The company launched the new airplane at the recently concluded Dubai Air Show, securing 259 orders from airlines across the Middle East and Europe. Four airlines, namely Etihad, Qatar, Emirates and Lufthansa, made up these orders that are worth over $95 billion at list prices. [1] In dollar terms, this is one of the largest launches for an airplane in the history of commercial aviation and we figure that it will provide a strong base for the 777X's development and production.

Expected to enter service with airlines in 2020, this airplane will be one of the most technologically advanced airplanes, featuring new engines from GE Aviation, composite wings and superior aerodynamics. Boeing promises the 777X to be 12% more fuel efficient and 10% more cost efficient than its competitors and we figure this high efficiency is the primary factor behind its strong customer response. [2]

We currently have a stock price estimate of $124 for Boeing, around 10% below its current market price.

777X Will Help Boeing Retain Market Share In Wide Body Commercial Airplanes

The 777X comprises of two models - 777-8X and 777-9X. The -8X model offers seating for around 350 passengers and competes directly with the Airbus' A350-1000 model, which is expected to enter service with airlines in 2017. The larger 777-9X model offers seating for around 400 passengers and does not have a direct competitor from Airbus. Both these planes also have long ranges making them suitable for international flying. This is evident by the strong initial response from Middle Eastern carriers that focus on long route international service.

In our opinion, the 777X will most help Boeing retain the legacy of its twin-aisle wide body 777, which today enjoys over 70% of market share of in-service worldwide fleet in its category. [1] The 777 has helped Boeing dominate the wide body commercial airplane segment for close to two decades now, and we figure the 777X will help Boeing retain the 777′s market share.

Wide Body Commercial Airplane Market Size

Boeing forecasts the global wide body commercial airplane segment to be worth around $2.5 trillion over the next 20 years comprising of around 8,600 airplane deliveries. [3] We figure that the 777X along with the 787 Dreamliner will help Boeing capture a large share of this global wide body commercial airplane market. Compared to Airbus, Boeing also has a larger backlog of wide body commercial airplanes. Through October, Boeing had over 1,300 undelivered orders for wide body commercial airplanes, compared to under 1,200 undelivered orders for Airbus. [4] [5] Thus, taking into account the current market position, backlog and future models, Boeing will likely hold its lead over Airbus in the wide body commercial airplane segment.

On the demand side, airlines in the developed regions are ordering wide body commercial airplanes to largely replace their aging fleet, while airlines in the developing regions like the Middle East and Asia Pacific are ordering wide body airplanes to largely create additional capacity. These demand trends also hold true for narrow body commercial airplanes and have raised backlogs at both Boeing and Airbus. As a result, these aircraft manufacturers have hiked their production rates to make timely deliveries against their rising backlogs. In the current year, driven by these production hikes, we anticipate global commercial airplane deliveries to rise to 1,480, from 1,410 last year.

Of these, Boeing expects to constitute 635-646 deliveries, up from 601 last year. [6]

Separately, like the 787 Dreamliner, which was launched as the 7E7, the 777X will be named by Boeing at a later date.

Disclosure: No positions.