Aircraft Demand Helps Boeing Lead Dow

Boeing is well-positioned to benefit from continued growth in air travel.
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SEATTLE (

TheStreet

) -- For the year, just three Dow stocks show a double-digit gain. One is

Boeing

(BA) - Get Report

, the Dow leader for the year, which issued its annual 20-year aircraft market forecast Thursday.

In truth, Boeing's forecast -- which lays out one long growth cycle -- varies little from year to year. Inevitably it shows that world air traffic continues to grow, mostly in emerging markets, especially in China. As traffic grows, demand for new aircraft also grows. This benefits Boeing and

Airbus

, the world's only large aircraft manufacturers.

Although Boeing and Airbus have market shares most companies can only dream of, they do face various problems. Their unionized workers occasionally strike. The introductions of their new model aircraft inevitably take longer than planned. (Boeing said Thursday that the long-delayed delivery of the 787 may slip from late 2010 into early 2011.) And their customer base -- the world's airlines -- comprises an intensely cyclical, historically unprofitable industry, inducing various periods of fear among investors in the aircraft makers.

>>Airlines: Still Inspiring Ire

Also, Airbus has made a mistake during the past two decades, devoting too much time, energy and money to development of a huge plane seating 500 to 850 passengers -- despite the fact that aircraft of this size account for just 6% of the world market, in terms of revenue.

But so what? It is abundantly clear that duopolies in strong industries have little reason to worry.

Here are a few facts from Boeing's current market outlook:

Boeing forecasts a $3.6 trillion (list price) market for 30,900 new commercial airplanes over the next 20 years. Of those airplanes, 69% will be single-aisle planes, mostly Boeing 737s and Airbus A320s, which will have a price tag of about $1.7 billion. Twin-aisle, twin-engine airplanes such as the Boeing 777 will account for 23%, costing $1.63 billion. The world's fleet will expand from 19,000 aircraft today to 36,000 by 2029. Most will be new.

Airline passenger traffic is expected to grow at a 5.3% annual rate during the period. North American traffic will grow at 2.8%, but Asia Pacific traffic will grow at 7.1%. As for China, it will have GDP growth of 7.3%, compared to 3.2% for the world, 2.7% for North America and 1.9 % for Europe. China is currently developing 97 airports.

Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes, told reporters on a conference call that making the projections is not horrendously difficult, given that air travel has generally grown about 5% annually since about 1980. As a result, "we've been very close in terms of forecasting air travel," he said. "Plus or minus (a bit), that's our call." Traffic dipped a bit last year, due to the global recession, but Boeing expects normal growth over the next four to five years.

One potential hazard is that in the first half of the current decade, Tinseth expects two companies, Canada's

Bombardier

and China's

Comac

, to enter the narrow-body aircraft market. Over time, increasing competition is probably the biggest threat the world's aircraft duopoly faces.

For the year, Boeing shares are up about 19% while the Dow is down about 1%. The other two double digit gainers in the Dow this year are

Caterpillar

(CAT) - Get Report

, up 16%, and

McDonald's

(MCD) - Get Report

, up 14%.

-- Written by Ted Reed in Charlotte, N.C.