Civil Aircraft : The Market for Large Commercial Jet Transports

Though many other sectors of the global economy remain in a moribund state, the large commercial jetliner market is robust and growing. By the end of 2011, Airbus and Boeing had accumulated order backlogs for large commercial jetliners representing about seven years' worth of production at 2012 build rates. During 2011, net orders for the companies' large airliners outpaced deliveries by more than two-to-one. Meanwhile, Airbus and Boeing are in the midst of ramping up large jetliner production, particularly for their popular narrowbody models.

All this activity has led to speculation by some industry observers that the large airliner market may be experiencing "bubble" conditions similar to the recent U.S. housing bubble, the effects of which are still being felt today. If the airliner market is indeed in a bubble situation, the main question is then one of timing - i.e., when does the bubble burst with a rapid collapse of demand for new aircraft.

Other observers, however, counter that the evidence of an airliner order bubble is quite thin. While undoubtedly some overexuberance does exist in the market, air travel is growing strongly, particularly in economically dynamic parts of the world such as the Middle East and the Asia/Pacific region. At the same time, North American airlines have not yet fully joined the order boom, and a number of North American carriers are facing significant near- to medium-term aircraft replacement needs.

In addition, Airbus and Boeing have become adept at managing supply and demand shifts through the technique of overbooking. The two firms attempt to allocate their delivery slots in such a way as to reduce their exposure to any one geographic region or business sector. Plus, when orders are canceled or deferred, the two manufacturers are able to quickly move other customers into those slots.

Finally, if and when overall demand does decline, the big order backlogs already accumulated by Airbus and Boeing should help protect the two firms from having to drastically cut production rates.

Besides growth in air traffic, a number of factors are resulting in the current strong demand for commercial airliners. High fuel prices and a laser-like focus by airlines on reducing operating costs are leading many carriers to replace aging aircraft with new, more fuel-efficient airliners. Access to financing has eased tremendously since 2009, and loans are often guaranteed by government export credit agencies.

Meanwhile, at the same time that they are increasing build rates, Airbus and Boeing are aggressively marketing their products and securing sizable new orders, frequently at deep discounts from list prices. While the competition with each other provides much of the motivation for this frenzied activity, the two giant manufacturers also have their sights firmly set on the emergence of new competitors in the market.The large commercial airliner market has essentially been a duopoly since Boeing absorbed McDonnell Douglas in the late 1990s. Since then, Airbus and Boeing have enjoyed a market supremacy that has, until quite recently, been almost unchallenged. However, new competitors are now emerging that are looking to capture a significant market.

This new competition is concentrated in the narrowbody, or light/medium transport, segment of the market. It is here where aircraft such as the Bombardier CSeries, the COMAC C919, and the Irkut MC-21 are appearing. It is true that none of these new aircraft have so far managed to rack up order totals anywhere close to those of the Airbus and Boeing narrowbody families. Still, their appearance on the market, and the prospect that they might begin to eat into the future sales of the Big Two manufacturers, has been helping to drive recent product development and production decisions at both Airbus and Boeing.

This market analysis includes 10-year production forecasts, in both units and monetary production value, for each large commercial jet transport currently in production, or expected to be in production, within the forecast time period. The forecasts cover more than 30 airliner models in 13 different aircraft families. Market share projections are also generated for each manufacturer.For methodological and analytical purposes, this study divides the large commercial airliner market into five seating classes. The first two classes cover the range from 100 seats to 186 seats, and together comprise the light/medium transport segment of the market. The remaining three classes, covering aircraft sized from 187 seats upward, comprise the heavy transport segment.

The two main market categories are described as follows:

LIGHT/MEDIUM COMMERCIAL JET TRANSPORTS

Airbus A319
Airbus A320
Airbus A321
Boeing 737
COMAC C919
Irkut MC-21
Tupolev Tu-204

Light/medium commercial jet transports are more commonly known as narrowbody, or single-aisle, airliners. In terms of unit production, the light/medium segment is easily the biggest of the two segments of the large commercial airliner market. Far more narrowbodies are built each year than widebodies.

As mentioned, it is principally in this segment that Airbus and Boeing are being challenged by new entrants. New narrowbody airliners entering the market include the C919 from the Chinese firm COMAC and the MC-21 from the Russian company Irkut. In addition, the Canadian regional jet manufacturer Bombardier is developing a new aircraft family, dubbed the CSeries, that spans the upper end of the regional jet market and the lower end of the narrowbody airliner market.

Currently, we categorize the CSeries as a regional jet. Thus, our forecast for CSeries production does not appear in this study, but is instead incorporated in our Regional Aircraft market analysis.

Nevertheless, out of all the new market entrants, it is the CSeries (and its promised operating and fuel efficiencies) that really captured the attention of Airbus and Boeing. The new Bombardier aircraft has been one of the main motivating factors (perhaps even the principal one) behind the continual increase in Airbus and Boeing narrowbody build rates and the launch of reengined versions of these narrowbodies.The CSeries was a big factor in Airbus' decision in late 2010 to launch the re-engined A320neo (New Engine Option) series. And, the immediate market success of the A320neo family ultimately led to Boeing launching the re-engined 737 MAX series.Airbus and Boeing both produce corporate jet versions of their narrowbody airliners.

Examples include the ACJ319 (ACJ = Airbus Corporate Jets), which is based on the A319 airliner, and the Boeing Business Jet (BBJ), which is derived from the 737. As such aircraft actually compete in the business aviation market, the forecasts presented in this study do not include production of corporate jet versions of commercial airliners.

Also not included in the forecasts in this study is the 107-seat Airbus A318. This aircraft is the smallest member of the Airbus A320 family. In its airliner configuration, the A318 is best categorized as a regional jet. It is also marketed in a corporate jet version called the ACJ318. As neither the A318 airliner nor the ACJ318 variant can really be considered part of the large airliner market, no A318 forecast appears in this study.

HEAVY COMMERCIAL JET TRANSPORTS
Airbus A330
Airbus A350 XWB
Airbus A380
Boeing 747
Boeing 767
Boeing 777
Boeing 787
Ilyushin Il-96

This category includes heavy jet transports, which are also known as widebody, or twin-aisle, airliners. In the past, particularly in the days when Boeing's 757 was still in production, some competitive overlap existed between the top end of the narrowbody sector and the lower end of the widebody segment.

With today's current product line-up, however, there is very little competitive overlap between the two segments. What little there is takes the form of the A321-200, and perhaps the 737-900ER, posing some competition to smaller widebodies for sales to carriers that fly certain route profiles.

During the forecast timeframe, competition in the widebody market will largely revolve around two key contests. The more important of the two will see the Airbus A350 XWB battle the Boeing 777 and 787. Boeing launched the 787 in 2004, and consequently revitalized the mid-size airliner market. After a somewhat difficult development period, deliveries of the 787 began in September 2011.

Meanwhile, following several false starts, Airbus eventually responded to the 787 with the A350 XWB. The European company designed the A350 XWB so that it competes not only with the 787 but also with many of the models in Boeing's popular 777 series. And Boeing, in turn, has begun considering potential improvements for the 777 in order to better position it against this new competition.

The other main contest in the widebody market takes place at the top of the segment. The 525-seat Airbus-A380 is the only airliner on the market that carries more than 500 passengers. No Boeing aircraft is a true direct competitor to the A380, but Boeing's new 747-8 will provide the A380 with considerable indirect competition. More than one carrier will undoubtedly consider both aircraft when the time comes to purchase a high-capacity passenger airliner.

Boeing deliberately chose not to develop a 500+ seater to directly compete with the A380, correctly reasoning that the market would not profitably support two such aircraft. Given air traffic growth and continuing infrastructure limitations, this situation may well change over time. But it will not change within our forecast timeframe.