The decision to land the Boeing Model 737-800 was made by China Eastern Airlines, which operated the aircraft that crashed on March 21, killing all 132 people on board. The cause of the crash has not yet been determined, and the ground may be removed soon if it turns out that the cause was not mechanical.
But Boeing has other problems in China, the world’s largest aviation market. It is on the verge of being effectively closed to the region as trade tensions between the United States and China have effectively halted Boeing sales in the country for the past four years. The company has not announced any sales to the Chinese passenger airline since November 2017. Just six months ago, Boeing predicted that commercial aircraft purchases from the Chinese market would be worth $1.5 trillion over the next 20 years.
It takes a long time to assemble and deliver aircraft once ordered, and Boeing continued to deliver aircraft to Chinese airlines and leasing companies in 2018 and early 2019. But since March 2019, only 40 of them have been delivered. Boeing’s best-selling aircraft, the 737 Max, was grounded around the world after it was determined that two fatal crashes were caused by a design flaw. This grounding lasted for 20 months.
But not in China, where the aviation regulator — one of the first to suspend the Max after the second crash — waited another year to allow the plane to fly. The Chinese airlines that own the planes have yet to return them to service.
“Now we anticipate further delays in China’s recovery of the 737 Max while this crash is being investigated, at least until a probable cause is identified,” Melius Research said in a note this week.
Market loss is just as important as
China will deal a crushing blow Boeing (bachelor)
, which has faced one problem after another over the past three years, from the crash of the 737 Max to a pandemic that has virtually wiped out demand for flights and devastated the finances of its airline customers. More recently, problems have arisen with his latest 787 Dreamliner, causing deliveries to stop.
In 2017 and 2018, China accounted for more than 20% of Boeing’s global deliveries, but this percentage has fallen below 5% since the start of 2020. (Boeing gets most of its income when the plane is delivered.)
Some experts believe that Boeing has reached agreements to sell some aircraft to Chinese airlines over the past four years, either through a leasing company or through a sale in which the name of the buyer is not disclosed. But no aircraft orders are official without the approval of the Chinese government, which views the sale of the aircraft as leverage in its negotiations with the United States over general trade issues, said Richard Aboulafia, aerospace analyst at AeroDynamic Advisory.
Boeing CEO Dave Calhoun told investors in October: “We continue to actively discuss with our Chinese customers their fleet planning needs and continue to urge the leaders of both countries to resolve trade differences.”
Analysts say the longer the current suspension drags on, the greater the risk that Boeing is at serious risk of losing out in the Chinese market.
Generally, an airline is reluctant to switch aircraft manufacturers because such a drastic change increases the cost of pilot training and makes spare parts more expensive. If Chinese customers with Boeing aircraft in their fleet started buying aircraft from competitors Airbus (EADSF)
it will be a long-term shift that will not be easy to reverse and will be made by the Chinese government, not the airlines.
“Boeing has its fans there. But a political mandate in China is a political mandate,” Abulafia said.
He and other experts expect Boeing to eventually restore some sales and deliveries in China, but at a much lower rate than it had expected 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. Abulafia 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 is not as important as it seemed a decade ago, when experts predicted that the market would account for 30% of all global commercial aircraft purchases. China’s aviation industry growth was slowing even before the pandemic, Aboulafia said, from 12.2% in the fourth quarter of 2018 to 5.3% a year later, shortly before the Covid outbreak became known.
If Boeing loses most of the Chinese market in the long run, it will forever remain number two behind Airbus. Global commercial aircraft sales are essentially a duopoly between the two companies. If Boeing were the permanent number 2, Epstein said, it would put Boeing at a competitive disadvantage in the long run.