Boeing’s problems in China go far beyond the latest grounding – Reuters News in France and abroad

The decision to ground the Boeing Model 737-800 was made by China Eastern Airlines, which operated the plane which crashed on March 21, killing all 132 people on board. The cause of the accident has not yet been determined and the grounding could be lifted soon if it turns out that the cause was not mechanical.

But Boeing has plenty of other problems in China, the world’s biggest aviation market. It is on the verge of being virtually shut out of the region as trade tensions between the United States and China have all but halted Boeing sales in the country for the past four years. The company hasn’t announced any sales to a Chinese airline since November 2017. Just six months ago, Boeing predicted the Chinese market would account for $1.5 trillion in commercial aircraft purchases over the next 20 years. .

It takes a long time to build and deliver planes after they are ordered, and Boeing continued to deliver jets to Chinese airlines and leasing companies in 2018 and early 2019. But only 40 of them were delivered. since March 2019. That’s when aviation authorities around the world grounded Boeing’s best-selling plane, the 737 Max, after two fatal crashes were caused by a design flaw. This grounding lasted 20 months.

But not in China, where the aviation regulator – one of the first to ground the Max after the second crash – waited another year to clear the plane to fly. The Chinese airlines that own the planes have yet to return them to service.

“We now expect further delays in the Chinese reinstatement of the 737 Max while this crash is under investigation, at least until a probable cause is identified,” a memo said this week. from Melius Research.

Key market

Losing a market as important as China would be a devastating blow to Boeing (BA), which has been hit with one issue after another over the past three years, starting with the 737 Max crashes and then the pandemic, which has all but wiped out demand for flights and devastated the finances of its airline customers. More recently, there have been issues with its latest model, the 787 Dreamliner, halting deliveries.

In 2017 and 2018, China accounted for more than 20% of Boeing’s global deliveries, but since the start of 2020 the percentage has fallen below 5%. (Boeing derives most of its revenue when an aircraft is delivered.)

Some experts believe Boeing has made deals to sell some planes to Chinese airlines over the past four years, either through a leasing company or through sales in which the buyer’s name is not listed. is not made public. But no plane order is official without the approval of the Chinese government, which sees plane sales as leverage in its negotiations with the United States on global trade issues, said Richard Aboulafia, aerospace analyst at AeroDynamic Advisory.

Boeing CEO Dave Calhoun told investors in October: “We remain in active discussion with our Chinese customers about their fleet planning needs and continue to urge the leaders of both countries to resolve trade disputes.” .

The longer the current stranding continues, the more seriously Boeing stands to lose in the Chinese market, analysts say.

Typically, an airline is reluctant to switch from one aircraft manufacturer to another 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 fleets started buying jets from competitors Airbus (EADSF)it would be a long-term change that would be difficult to reverse, and made by the Chinese government rather than the airlines.

“Boeing has its fans there. But a political term in China is a political term,” Aboulafia said.

He and other experts expect Boeing to eventually recover some sales and deliveries to China, but at a far lower number than it counted on just a few years ago.

China “can get some 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 possibility of divorce”.

The only good news for Boeing is that China’s aviation sector isn’t as big as it seemed a decade ago, when experts predicted the market would account for 30% of all global aircraft purchases. commercial aircraft. China’s aviation industry was slowing even before the pandemic, Aboulafia said, dropping from a growth rate of 12.2% in the fourth quarter of 2018 to 5.3% a year later, just before the Covid outbreak hit. manifests.

If Boeing loses a large part of the Chinese market in the long term, it will be relegated to the rank of permanent number 2 behind Airbus. Global commercial jet sales are essentially a duopoly between the two companies. Being a permanent No. 2 would put Boeing at a long-term competitive disadvantage, Epstein said.

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Boeing’s problems in China go far beyond the latest grounding – Reuters News in France and abroad