Why China and Boeing still need each other

Boeing’s commercial aircraft sales to China have slowed to a trickle as US-Chinese relations have soured. But there are new prospects for the company to regain traction.

A meeting in November between United States President Joe Biden and President Xi Jinping of China did not yield public progress towards resuming plane sales, but it may ease tensions between the two countries, boding well for Boeing, a giant of American manufacturing. Perhaps more important, Boeing and China still need each other.

“There are lots of incentives for everyone to do a deal here,” said Mr Eddy Pieniazek, head of advisory at Ishka, an aviation consulting firm. “A lot of it is just down to timing.”

Six years have passed since Boeing’s last large airplane order in China, an agreement to buy 300 planes that was signed during a visit to Beijing by then President Donald Trump. For several years, the company’s customers and government officials in China have also refused to allow delivery of previously ordered 737 Max jets, the company’s most popular commercial plane.

As a result, Boeing has redistributed dozens of jets earmarked for Chinese airlines to other customers. Boeing is holding 85 Max planes in storage awaiting delivery to Chinese carriers, for which the planes were even painted years ago. Those are among 250 aircraft in Boeing’s inventory, most of which the company said it expected to deliver by the end of 2024.

China is a crucial market for Boeing. Before the Covid-19 pandemic, about one-third of Boeing’s 737s were being delivered to the country. Boeing projects that China will account for 20 per cent of global airplane demand over the next two decades. This means China will need an estimated 6,500 single-aisle planes like the 737 Max and more than 1,500 larger, twin-aisle planes, such as Boeing’s 787 Dreamliner, Boeing said.

The Max was banned globally for 20 months after it was involved in two fatal crashes in late 2018 and early 2019, killing 346 people in Indonesia and Ethiopia. Passenger flights aboard the Max resumed in much of the world by early 2021, but China was the last major country to clear the plane to fly again. The first Max passenger flight there was in January, and all 95 Max planes in China are now back in service.

While Boeing’s sales and deliveries to China have diminished greatly, the company has not been shut out. Boeing sold a handful in 2020 to a Chinese leasing company, ICBC Leasing, which also took delivery of a dozen Max jets in 2021 and 2022. Boeing has also sold and delivered dozens of 777 freighters to customers in China in recent years.

In the three years since the Max began flying again, Boeing has received more than 2,100 new orders worldwide for the jet, not including cancellations. During an air show in November in Dubai in the United Arab Emirates, the company announced more than 200 additional orders, about a third of those for the Max.

That sales momentum, faith in the company’s ability to accelerate deliveries and other recent positive news have helped to lift Boeing’s share price more than 15 per cent in November.

But Boeing still lags behind its European rival, Airbus, in orders. Airbus has more planes in service and on order in China and has seized the opportunity to try to widen its lead: In 2022, it announced an order for nearly 300 more planes in the country, and in 2023 it said it would double production capacity at a factory there.

Still, China will be hard pressed to grow without Boeing, experts said.

Even with existing orders from Boeing, Airbus and Comac, a home-grown airplane manufacturer, China is expected to need nearly 1,100 more planes by the end of 2030 to replace ageing aircraft and to meet growing demand for domestic travel, according to IBA, an aviation consultancy.

“We’re going to need to see some announcements over the next year to fill those gaps,” said Mr Dan Taylor, head of consulting for IBA. “Comac won’t be able to fill all that.”

In the two decades before the pandemic, air travel in China increased tenfold, rising from just over 60 million passengers per year in 2000 to nearly 660 million in 2019, according to the World Bank.

That growth rate is likely to moderate in the years ahead, particularly now that China has built more miles of high-speed rail lines than the rest of the world combined. But the country’s appetite for air travel is still expected to swell.

China will need new planes to meet that growing demand. Of all the passenger planes in China, more than 95 per cent are in service, according to Cirium, an aviation data provider.

To address its needs, the country has moved ahead with the production of its own narrow-body jet, the Comac C919, which is similar in size and range to the Max and its main rival, the Airbus A320. The Chinese government has lavishly funded Comac, a state-owned enterprise with more than 110 buildings in Shanghai, for design, testing and assembly of the C919.

Source link

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *