Arguably the strongest growth driver for aircraft manufacturer Boeing (NYSE:BA) over the next ten to twenty years is one that is hardly discussed by mainstream media and which isn’t incorporated into Boeing stock at all: passenger air mobility, which is essentially a fancy term for flying cars.
Flying cars were an obsession of 1980’s science fiction movies. Then, the future came. Flying cars didn’t show up. Everyone wrote them off as more fiction than science.
Until recently.
Big companies like Uber and Boeing are making big pushes into the air mobility market. Uber has launched Uber Air, an initiative that has the goal of bringing aerial ride-sharing at scale to Dallas and Los Angeles by 2023. Boeing has partnered with Uber on Uber Air, and recently completed the first successful test flight of its PAV, or passenger aerial vehicle (an air taxi).
In other words, flying cars are coming. That’s a big thing for Boeing stock. Everyone looks at Boeing stock as a steady grower in the secular-but-mild growth airplane industry. That isn’t going away anytime soon. But, Boeing stock could get a big boost over the next five, ten and twenty years through air mobility.
Indeed, this market could ultimately be the catalyst that propels Boeing stock to double in the long run.
Aerial Ride Sharing Is the Future
Here are a few factual observations regarding the current status of transportation:
- Essentially everyone is flying these days, with an estimated global air travel population of 4.1 billion in 2017.
- Everyone is also driving, with the estimated number of cars in service globally at well over 1 billion.
- Freeways, highways and streets are becoming increasingly crowded due to the consistent rise in traffic volume and no such rise in ground transportation infrastructure.
- Technology has evolved to a place where aerial vehicles are a potential reality within the next several years, and big companies are putting big money into this flying car evolution.
- There is no optimal transportation method for medium distance travel (long car rides are annoying, short plane tickets are expensive and public transportation is sporadic).
Given these observations, it becomes clear that aerial ride sharing is the future of medium distance travel. Over the next ten to twenty years, there will be three main forms of transportation: cars, airplanes and PAVs. Cars will still be used for short distance travel. Airplanes will still be used for long distance travel. But, where medium distance travel today is split between cars and airplanes, it will one day be dominated by PAVs.
This is simply a natural technological evolution to fix current traffic problems through developing an optimal above-ground solution for medium distance travel.
Boeing Will Be a Major Player
In this future PAV market, Boeing projects to be a major player.
Car manufacturers are focusing all of their R&D efforts on autonomous driving. They don’t know anything about air travel, nor are they dedicating many resources to know more about it. As such, the suppliers in this industry will naturally be those companies that know a ton about air travel, and who are dedicating resources toward PAVs. Those companies are aircraft manufacturers.
At the head of the list is Boeing. According to Boeing’s website, the company has over 10,000 commercial jetliners in service. Estimates peg the global commercial aircraft fleet at 25,000. Thus, Boeing owns about 40% of this commercial aircraft market, making them the leading candidate to be the leader in the air mobility market.
This Is a Potential $100 Billion Market
When you talk about the supply side of the air mobility market, it is tough to estimate just how big this market could be. But, my back-of-the-envelope math suggests that the supplying of PAVs could turn into a $100 billion market one day.
Here’s the math. There are 25,000 aircraft in the world that together perform nearly 37 million flights. That implies roughly four flights per day. The average capacity of an airplane, roughly speaking, is around 200 seats. Thus, each year, there are around 7.4 billion potential airplane seats (meaning in-flight seats that could be filled by a passenger). The global air travel population was 4.1 billion in 2017. Thus, potential in-flight seats per passenger numbered around 1.8.
Let’s reverse engineer from that number back into what would be a reasonable estimate for total PAVs in the world in 20 years.
A ratio of 1.8 potential in-flight seats per passenger seems high. That means most planes aren’t entirely full. But, most PAVs will be pretty full given their novelty and smaller size. Thus, a ratio between 1 and 1.5, or around 1.25, seems most appropriate.
Let’s assume that of the 4 billion people traveling on airplanes today, half of them will travel on PAVs within 20 years, implying a 2 billion PAV passenger pool (if you think that’s crazy, consider that it took the airline industry ~10 years to go from 2 billion travelers to 4 billion travelers). Based on a 1.25 seat per passenger ratio, that equates to a total of 2.5 billion potential PAV seats. PAVs will likely have a seating capacity of 5. Thus, 2.5 billion potential in-flight PAV seats will require 500 million total flights. PAVs should be able to fly much more frequently than planes. Let’s call it 10 trips per day, versus four per day for planes. Thus, 500 million total flights per year should be satisfied by around 135,000 PAVs.
PAVs won’t come into existence until 2023. Thus, between 2023 and 2039 (a 16 year stretch), the air mobility market should go from zero PAVs, to 135,000 PAVs. Annualized, that implies about 8,500 PAVs per year. At an average price of $10 million, that equates to an $85 billion annual revenue opportunity. Plus ancillary parts, this could easily be a $100 billion annual revenue market.
Boeing Stock Could Double
Let’s do some speculative math on Boeing stock now.
As stated earlier, Boeing controls about 40% of the aircraft market. A 40% share of a potential $100 billion annual revenue opportunity implies a potential annual revenue opportunity for Boeing of $40 billion.
That’s a big number. Boeing’s revenues over the past twelve months are around $95 billion. If Boeing’s aircraft and other businesses continue to grow at a mid-single-digit rate, then core revenues should measure around $200 billion in 20 years. Adding in $40 billion from air mobility, Boeing stock could be supported by a $240 billion revenue base in 20 years.
A current 2X sales multiple on that implies a long-term valuation target of $480 billion. Boeing stock has a market cap of $200 billion today. Thus, Boeing stock could more than double in the long run thanks to air mobility.
Bottom Line on BA Stock
The air mobility and PAV market is highly speculative today. All that’s being done is research and a few test flights. But, if that research and those few test flights materialize into something tangible within the next few years, then the pathway for the air mobility market to become a $100 billion-plus market will gain visibility. Once that happens, Boeing stock will attract buyers who understand the long-term upside of air mobility.
In other words, Boeing’s potentially biggest long-term growth driver has yet to arrive. If (once?) it does, Boeing stock will head meaningfully higher.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
