“We would now expect further delays in the Chinese resumption of the 737 Max as long as this accident is investigated, at least until a possible cause is identified,” a note from Melius Research said this week.
Purchase of keys
The loss of a market as important as China would be a catastrophic blow to Boeing (BA), which has been hit by one problem after another for the past three years, starting with the 737 Max crash and then the pandemic, the which almost eliminated the demand for flights and ruined the airline’s customer finances. More recently, there have been problems with its latest model, the 787 Dreamliner, which has stopped delivering. In 2017 and 2018, China accounted for more than 20% of Boeing’s global deliveries, but since the beginning of 2020 the figure has fallen below 5%. (Boeing receives most of its revenue when an aircraft is delivered.) Some experts believe that Boeing has reached agreements for the sale of certain aircraft to Chinese airlines over the past four years, either through a leasing company or through sales in which the buyer’s name is not disclosed. However, no aircraft order is official without the approval of the Chinese government, which sees aircraft sales as a lever in its negotiations with the United States on general trade issues, said Richard Aboulafia, aerospace analyst at AeroDynamic Advisory. Boeing CEO Dave Calhoun told investors in October: “We remain in active discussions with our Chinese customers about their fleet design needs and continue to urge leaders in both countries to resolve trade disputes.” The longer the current landing lasts, the more serious the Boeing risk of losing the Chinese market, analysts say. Usually, an airline is reluctant to change aircraft manufacturers because such a significant change increases the cost of pilot training and makes spare parts more expensive. If Chinese customers with Boeing planes in their fleet started buying jets from rival Airbus (EADSF), it would be a long-term change that would not be easily reversed and would be made by the Chinese government and not by the airlines. “Boeing has its followers there. But a political mandate in China is a political mandate,” Aboulafia said. He and other experts expect Boeing to take back some sales and deliveries in China, but at a much lower number than just a few years ago. China “can get some of the planes it needs from Airbus, but it can’t get all of its planes from Airbus,” said Ronald Epstein, an aerospace analyst at Bank of America. Aboulafia describes the relationship between China and Boeing as “a bad marriage with no chance of divorce”. The only good news for Boeing is that China’s aviation industry is not as important as it seemed a decade ago, when experts predicted that the market would account for 30% of all global commercial jet markets. China’s aviation industry slowed even before the pandemic, Aboulafia said, from a growth rate of 12.2% in the fourth quarter of 2018 to 5.3% a year later, just before Covid’s outbreak. If Boeing loses much of the Chinese market in the long run, it will be downgraded to permanent No. 2 behind Airbus. Global sales of commercial jets are essentially a dilemma between the two companies. Being permanent No. 2 would put Boeing at a long-term competitive disadvantage, Epstein said.
