Boeing Set to Make It Big in Asian Markets
The Singapore Airshow proved lucky for Boeing (NYS: BA) . On the very first day of the show, Lion Air, Indonesia's largest carrier by passenger volume, placed a staggering $22.5 billion order for Boeing 737 jets, the largest commercial aircraft deal for the company.
The deal seems to be a classic example of how aircraft manufacturers have a great opportunity to cash in on Asia's rapidly growing markets, to counter weakness in the developed ones.
A win-win deal
Lion Air will buy 230 short-haul aircraft from Boeing (which includes 201 737 MAX jets and 29 737-900 extended-range jets) with the option of buying another 150 planes. Acquisition of the fuel-efficient 737 MAX jets is expected to save the company 10%-12% in fuel costs versus the most fuel-efficient single-aisle jets of today.
With the Asian markets being more fare-driven than service-driven, this will enable Lion Air to provide more competitive rates to the price-conscious middle-class segment to which it caters. In Indonesia particularly, the budget airline market is expected to grow twice as much as the premium market.
How Asia counts
The commercial aircraft market in Asia is expected to grow faster than the rest of the world. According to IATA, in 2012, Asian carriers will make up 60% of the total income generated by the global airline industry. In line, Boeing anticipates nearly 35% of its expected global demand for 33,500 aircraft over the next two decades to stem from the Asia-Pacific region.
Increased defense-related spending by emerging Asian economies sweetens the pie further. China demands special mention as the country is expected to triple its aircraft fleet in the next two decades. Little wonder that Boeing expects the region to account for nearly half of its international defense revenue in future.
The Foolish bottom line
While this deal will significantly boost Boeing's numbers, it remains to be seen how much more of the Asian pie Boeing can grab in the future. Given its brand image and existing contacts in Asia, the company seems comfortably placed for the long run. What do you think? Tells us in the comments section below.
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At the time this article was published Navjot Kaur does not own shares of any of the companies mentioned in this article. 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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