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Summary
The American plane-maker is returning to the Chinese aviation market after nine years, but don’t overhype the deal that’s letting it in. It’s lucky that aircraft are in short supply globally, but in China, it must reckon with the ambitions of state-run Comac.
Boeing’s agreement for 200 jets marks the end of a nine-year drought in China. But the order was considerably smaller than expected—and a reminder of how much ground it has lost in the world’s second-largest aviation market.
There’s little the American plane-maker can do directly to overcome its disadvantages in this priority region, especially when it’s being weaponized for diplomatic leverage.
But it should make the most of a global aircraft shortage to appeal to Chinese airlines, whose fleet is expected to double over the next two decades due to robust demand for air travel.
That’s why it was a surprise when the confirmed deal was less than half of the 500 that was reportedly under discussion.
Boeing has not announced any major sales to commercial airlines in the country since November 2017 during a state visit to Beijing by US President Donald Trump in his first term.
Orders evaporated in 2018 after Trump began his first trade war with China. A year later, global aviation regulators grounded Boeing’s best-selling 737Max following two fatal crashes caused by a design flaw. The pandemic, which crushed demand for air travel, didn’t help matters.
But the rising geopolitical rivalry is handicapping the plane-maker. Its biggest problem in China is that along with the broader American aviation industry, it has become a strategic hot potato used as a bargaining chip by Washington and Beijing depending on the priorities of the day.
This vulnerability was laid bare last April. China turned away some Boeing planes that it had ordered, prompting the manufacturer to look for other buyers, after Trump imposed tariffs of at least 145% on Chinese products. Mainland airlines were additionally told to stop buying US-made parts and equipment.
Washington was equally capable of escalating the conflict. It suspended the export of US-made jet engines in May, causing Comac, China’s state-owned aerospace firm, to slash its production targets.
With a trade truce now in force, Boeing’s deliveries have resumed. But as it returns to a market that used to account for 20% of its sales, it is finding that rival Airbus has surged ahead by leveraging its local manufacturing footprint and Europe’s pragmatic dealings with Beijing.
These stronger industrial and governmental ties will be hard for Boeing to overcome. The European company now has a market share of 55%, compared to 44% for Boeing and 1% for Comac, according to analytics firm Cirium. Just six years ago, the aircraft duopoly was evenly split.
Airbus is set to expand its lead. It opened a second assembly line in Tianjin last October to produce the A320 family of single-aisle jets, which compete with the 737Max and Comac’s C919. Establishing a similar facility wouldn’t be feasible for Boeing, given the political optics in the US of investing in a strategic rival, even if it would help avoid any future tariffs.
Airbus may be ahead now, but in the long run, both Western aerospace makers will be facing increasing competition from China’s Comac, whose success is vital to Beijing’s efforts to project itself as a technological superpower.
With expected deliveries of just 28 planes this year, it’s still much smaller than the 870 target for Airbus and 660 for Boeing. But in four years, Comac’s share of single-aisle deliveries—the workhorses of civil aviation—to Chinese operators is expected to rise to around 65%, according to Dan Taylor, head of consulting at IBA, an aviation market intelligence firm.
Although this will represent just 7% of the total in-service narrow-body fleet when older Airbus and Boeing models are included, it shows how quickly the Chinese upstart is expected to grow.
Boeing has limited ability to outdo its competitors in China, but it doesn’t have to. It just needs to ramp up its own production to meet existing demand.
A post-pandemic rebound in air travel has outpaced the ability of aviation manufacturers to deliver jets, causing record order backlogs stretching more than a decade into the future. Efforts to increase the output of the 737Max and the dual-aisle 787 Dreamliner are a step in the right direction. Boeing has many customers to serve, but it should consider prioritizing Chinese airlines if it truly wants to make a comeback.
All carriers are currently being hammered by the sky-high cost of jet fuel, their single biggest expense. Anything the plane maker can do to lower the lifetime cost of operating an aircraft would help. An obvious place to start would be offering steeper-than-usual discounts on list prices.
Boeing’s deal, completed with an assist from the Trump administration, marks its full return to China after a long hiatus. Challenges will remain, but the global aircraft shortage could help smooth its market re-entry. ©Bloomberg
The author is a columnist for Bloomberg Opinion’s Asia team, covering corporate strategy and management in the region.
English (US) ·