Within this overall picture of growth of traffic and aircraft demand, important market shifts will take place, with the nations of the Asia-Pacific region experiencing higher economic and air traffic growth than other regions of the world. This region has had some of the most rapidly growing economies in the world, and most forecasts anticipate that this pattern will continue. Furthermore, integration of China, and now possibly Indochina, into the regional and global marketplace is continuing to lead to expanded international travel associated with it. Although the region faces some uncertainty on the security front in the post-Cold War era, even these potential problems seem less serious than in most other parts of the world. Boeing foresees that intra-Asian travel will grow at an annual rate of 8.4 percent to 2010, and transpacific travel at 7.8 percent, substantially above the global average. Some of the Asian and Asia-Pacific international traffic will move on U.S.-owned airlines, but the market shift will also involve an increased role for non-U.S. airlines. McDonnell Douglas, for example, anticipates that the dollar value of aircraft deliveries to the Asia-Pacific countries will account for 39 percent of the global total. Whereas only Japan and Australia are among the top 10 countries in terms of the dollar value of aircraft deliveries through 1992, Asia-Pacific countries will account for 5 of the top 10 from 1993 through 2010 in the Boeing forecast (with Japan and Australia joined by China, South Korea, and Singapore). Japan alone is anticipated to account for $60.5 billion of the overall market for new planes through 2010 (7.4 percent of global demand).

This long-term optimism about the market for new commercial aircraft contrasts with considerable pessimism concerning the next several years. Most observers believe that sales will continue to decline from their 1992 peak for several more years, perhaps through 1996. Airframe and engine makers are counting on a surge in new orders from U.S. airlines for delivery later in the decade (aided by requirements to meet more stringent noise regulations).

Although we can be reasonably certain that growth in the demand for air travel and environmental regulation will lead to more aircraft sales over the coming decade and beyond, continuing financial pressure and structural change in the U.S. and global airline businesses may permanently affect traditional purchasing criteria. Airline deregulation, both in the United States and internationally, implies a continuation of strong price competition among airlines leading to average profit levels over the next several decades that will remain lower than in the past. In this more stringent competitive environment, airlines will put increased pressure on the manufacturers to cut prices. This situation is exacerbated by the longevity of aircraft. Even with improved performance characteristics, airlines demand that the anticipated ownership and operating cost of the new aircraft represent a significant savings over existing aircraft. This represents a change from the past when higher profits gave the airlines more financial leeway to introduce new models.

Such a shift in airline demand will lead the aircraft industry toward increased price competition; the most successful participants in all aspects of the



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