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Tickers in this Article: BA, RTN, LMT
Defense and Aerospace manufacturer, The Boeing Company (BA) released its 2012 Current Market Outlook estimating a $4.5 trillion market for 34,000 new commercial airplanes in the next 20 years. Boeing's projection of growth is based on the strength of the commercial aviation market, recovery witnessed in world economies and strong demand for fleet addition and replacement. Airline traffic is forecast to grow at a 5% annual rate over the next two decades, with cargo traffic projected to grow at an annual rate of 5.2%.

Low cost carriers, with their ability to stimulate traffic with low fares, are growing faster than the market as a whole. There is also a strong demand to replace older, less fuel-efficient airplanes. Replacement accounts for 41% of new deliveries in the forecast. The market for new airplanes is set to become more geographically balanced in the next two decades. Asia-Pacific, including China, will continue to lead the way in total airplane deliveries. Widebodies, such as Boeing's 747-8, 777 and 787 Dreamliner, will account for almost $2.5 trillion dollars worth of new airplane deliveries with 40% of the demand for these long-range airplanes coming from Asian airlines.

The single-aisle market, served by Boeing's Next-Generation 737 and the future 737 MAX, will continue its robust growth. Boeing expects the single-aisle airplanes to be the major driver behind the demand growth, accounting for about 68% of the estimated airplane deliveries in the period 2012-2031 and approximately 45% of total value of the deliveries. This depicts a worldwide demand for 23,240 single-aisle jets worth more than $2 trillion.
This growth in the single-aisle airplane segment is mainly due to the popularity of the low-cost carriers business model throughout the world; expansion of air service in emerging markets such as India, China and Southeast Asia; and continuing instability of fuel prices, which is compelling airlines to accelerate replacement of older airplanes.

The twin-aisle market segment is expected to deliver roughly 23% of projected units and 46% of delivery in dollars. As per the report, 7,950 twin-aisle planes worth $2.1 trillion will be needed worldwide in the period 2012-2031. Further, the company predicts a demand for 790 large aircraft worth $280 billion, and 2,020 regional jets worth $80 billion.

Boeing expects the world freighter fleet to nearly double from the current strength of 1,740 aircraft to 3,200 at the end of the forecast period.  Additions to the fleet will include 940 new-production freighters (market value of $250 billion) and 1,820 airplanes converted from passenger models. Large (more than 88.2 tons capacity / 80 tonnes) freighters will account for 680 new-build airplanes. Medium (44.1 to 88.2 tons / 40 to 80 tonnes) freighters will total 260 airplanes. No new standard-body freighters (49.6 tons / less than 45 tonnes) will be required, but there will be 1,120 standard-body conversions.

Boeing enjoys a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and is one of the largest aerospace and defense contractors in the world. Besides, its revenues are spread across more than 90 countries around the globe.

Boeing recently raised its fiscal 2012 earnings per share to a range of $4.15-$4.35 versus its earlier guidance range of $4.05-$4.25. Revenue guidance for 2012 is expected to be between $78 billion and $80 billion. Commercial Airplanes' 2012 deliveries are expected to be between 585 and 600 airplanes and are already sold out. This includes an expected 70 to 85 787 and 747-8 deliveries. Commercial Airplanes' 2012 revenue is expected to be between $47.5 billion and $49.5 billion with operating margins between 8.5% and 9%.

In the defense space, however, the threat of cutbacks will loom over the company going forward. Overall, Boring expects defense revenue for 2012 to be between $30.0 billion and $30.5 billion with operating margin greater than 9%. 

Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths, Lockheed Martin Corporation (LMT) and Raytheon Company (RTN).
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