Boeing needs China to approve the 737 Max. But that won’t end its epic sales drought



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The Civil Aviation Administration of China (CAAC) has not yet said whether it will allow the 737 Max to fly in the country after the United States Federal Aviation Administration gave the plane the green light for carry passengers earlier this week. While the U.S. government has been a significant hurdle for Boeing to clear, it will need the approval of other aviation regulators before airlines can fly the plane between international destinations.

The European Union’s Aviation Safety Agency, which oversees flights in Europe, said it plans to take action in late December or early 2021.

But China’s approval is essential. The country was the first to take down the 737 Max last year after two of the planes crashed, killing hundreds. The CAAC said last month it has its own criteria Boeing (BA) must meet before China is happy with the plane again, including reassurance that changes to its design are “safe and reliable.”
“As long as they meet the requirements, we are happy to see them resume their flights,” Feng Zhenglin, director of CAAC, told a press conference in Beijing last month. “But if not, we must maintain strict scrutiny to ensure safety.”

The CAAC did not respond to a request for comment from CNN Business.

A vital market

China’s approval isn’t just about allowing the 737 Max to fly in Chinese airspace again. Boeing’s business in China has been badly damaged by years of fighting between Washington and Beijing over trade, technology and intellectual property rights, and getting back on track will be a tall order.

Before the trade war, China was a big market for Boeing. In 2015 and 2016, sales in China accounted for 13% and 11% of the company’s total revenue, respectively, according to its annual reports. In 2015, China was Boeing’s largest export market and third in 2016.
But the company hasn’t sold any airliners to China over the past two years for reasons “everyone knows,” said Sherry Carbary, president of Boeing China, late last year, according to the Shanghai Observer. Two cargo ships were ordered by China Cargo in May.

The company’s problems in China are “beyond Boeing’s control,” said Richard Aboulafia, vice president of analysis at Teal Group Corporation, an aerospace consultancy.

“In China, Boeing is a prisoner of forces beyond the mere dynamics of the aviation market,” he added. “It would be impossible for Boeing not to get caught up in this giant mess, involving trade barriers, [intellectual property] disputes and tariffs. “

US-China tensions have manifested in other ways as well. Beijing said last month it would impose sanctions on U.S. companies – including Lockheed Martin (LMT) and Boeing – which have been involved in the arms sale to Taiwan.
However, Boeing is optimistic about its prospects in China. Last week, the company posted a surprisingly positive outlook on the country’s sales, saying it plans to sell 8,600 new planes to China over the next 20 years. That estimate, valued at $ 1.4 trillion, is even higher than it was before the Covid-19 pandemic – notably, China’s economic recovery this year has overtaken the rest of the world.

“Boeing remains obligated to develop its presence in the civil aviation market in China for economic and strategic reasons only,” said Alex Capri, researcher at the Hinrich Foundation and visiting principal researcher at the National University of Singapore. “Failure to do so will cost the company [research and development] revenues and future opportunities to collaborate with strategic partners. “

Domestic competition

Boeing could face stronger competition as it seeks to get back on track in China.

Its rivalry with Airbus deepened, especially after Boeing was hit by the 737 crisis. Last year, a few weeks after China took down the Boeing 737 Max, Airbus announced an agreement to sell 300 passenger planes to Chinese airlines.
The Commercial Aircraft Corporation of China, or Comac, is also developing its own aircraft.
Comac C919: China faces Airbus and Boeing

Comac’s jets may be able to meet some demand in China over the next five to eight years, Aboulafia said, but analysts agree the planes lack the makings of a global competitor.

“As for [Boeing] by losing market share to Comac, there is no certainty when this could happen, ”Capri said, adding that China has been trying unsuccessfully to build advanced jet engines and other technologies for decades. decades.

Capri added that Boeing has also been able to build a strong strategy in China by isolating its operations in the country and keeping some of its most valuable intellectual property and other operations elsewhere. He pointed to a 737 factory in China’s Zhejiang Province, where the company performs low-value tasks like installing interiors.

“Competition in the Chinese market will always be a Faustian affair,” Capri said. “But civil aviation is no different from the situation in the automotive or semiconductor industry,” he said.

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