Boeing jet sales to China ‘highly complicated’ by company’s arms sales to Taiwan, experts say

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The outlook for sales of Boeing passenger jets in China is “highly complicated” due to bilateral diplomatic issues, particularly the company’s arms sales to Taiwan, according to analysts.

China is likely to be cautious in its future dealings with Boeing – including whether to give its 737 MAX approval to resume flying again – given continued US-China tensions, they said.

For its part, Boeing is trying hard to break the ice and resume business in China.

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In an interview with CNBC on Wednesday, Boeing CEO Dave Calhoun said he was quite “bullish and constructive” on sales to China. “We need some good diplomacy on that front,” he said in reference to the difficulties the company faces.

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With the Chinese market for passenger jets set to grow sharply in the coming years, Calhoun had nothing but good things to say about China’s appetite for Boeing jets.

The Chinese “love” Boeing’s aeroplanes and have had “great success” with them, Calhoun said, noting that the phase-one trade deal reached earlier this year includes a provision for plane sales. Boeing is the largest US exporter in terms of total value.

“I do believe that when a constructive relationship is begun, then things will quiet down and the Chinese will want to get aeroplanes,” Calhoun said. “And Boeing will be a beneficiary of that.”

When asked if China was interested in striking deals for more of Boeing’s troubled 737 MAX, Calhoun said, “Oh, yeah.”

China had been one of the largest markets for the 737 MAX, which was grounded in March 2019 after two crashes in less than five months killed 346 people. The US federal authorities lifted the flight ban last month, and Europe is set to lift its ban early next year. But the plane’s future in China, where it is still grounded, is unclear, and its fate could be tied to broader US-China frictions. The Civil Aviation Administration of China (CAAC) said last month that it had not set a timetable for the plane’s return, and that the model must meet safety requirements to take off again.

This is not a simple matter of the [passenger jet] market, this is a very complex matter of national security and the personal safety of Chinese citizens

Shi Yinhong, adviser to State Council

Shi Yinhong, a professor at Renmin University who advises the State Council, China’s cabinet, said the current relationship between Boeing and China is “highly complicated” because Chinese authorities are “very unhappy” about Boeing’s involvement in US arms sales to Taiwan.

The Chinese government announced in October that it would impose sanctions on Boeing’s defence unit over the Taiwan weapons sales, but did not set penalties on the firm’s commercial aviation business. However, political considerations are usually the driving force behind China’s trade decisions.

“This is not a simple matter of the [passenger jet] market, this is a very complex matter of national security and the personal safety of Chinese citizens. The Chinese government will certainly take very cautious steps in dealing with Boeing’s continued large-scale sales in China,” Shi said.

China is the world’s largest single market for Boeing and Airbus, with Chinese clients having accepted delivery of one out of every four 737s sold by Boeing.

Despite China’s need for more passenger jets, US-China tensions will play a significant role in Boeing’s future sales to China, said Lin Zhijie, an expert at the official Aviation Think Tank, echoing Shi’s view.

“China’s domestic market is recovering rapidly, and the number of domestic flights has rebounded to 100 per cent of last year’s level. The Chinese market is now more significant for Boeing, as the company is grappling with the global aviation industry’s massive downturn,” Lin said, referring to the worldwide collapse of air travel due to the coronavirus pandemic.

Lin added that China’s civil aviation market will continue to boom after the pandemic, but it remains to be seen how the country will distribute its purchase plans between Boeing, Airbus and state-owned planemaker Commercial Aircraft Corporation of China, which has said it expects to start delivering its C919 aircraft by the end of next year.

Despite the impact of the coronavirus, Boeing forecast in November that Chinese airlines would need 8,600 new aeroplanes through 2039, or 6.3 per cent more than the company’s prediction last year of 8,090 planes. Much of the demand will be for single-aisle jet aircraft such as the 737 MAX, with that demand worth about US$1.4 trillion based on list prices, according to Boeing.

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Luya You, a transport analyst at Bocom International, said there was “definitely” reasonable logic behind Calhoun’s statement, as the Chinese market for aircraft is the one of the fastest-growing in the world. But the question of aircraft deals and Boeing’s future presence in the Chinese market is certainly being hotly debated due to the heightened US-China tensions, she said.

“While it’s likely that the Chinese market may lean more heavily on Airbus deliveries in the near-term, it would also be a feat for Chinese airlines to dissociate from Boeing jets altogether,” she said. “It’s simply a matter of supply and demand. Narrow-body jet supply is still highly constrained if we consider global growth trajectories.

“Given the fact that there are only two major [manufacturers] capable of mass-producing commercial narrow-bodies at the moment, and taking note of their respective lengthy backlogs, it’s not a stretch to say that many airlines have no choice but to invest in the 737 MAX.”

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