Boeing is losing market share to Europe’s Airbus and local COMAC

Boeing is losing market share to Europe’s Airbus and local Aircraft Corporation of China (COMAC) amid 737 MAX disaster legacy and US-China tech war, and is launching to revive its business in China but faces stiff competitive headwinds.

On the upside, Boeing’s 737 MAX is back in service on Chinese domestic routes after being grounded for almost four years following fatal crashes in Indonesia and Ethiopia. On January 13, the 737 MAX was used on a flight from Guangzhou to Zhengzhou by China Southern Airlines.

The Boeing 737 MAX is a family of four short- to medium-range narrow-body, single-aisle aircraft with a seating capacity of up to 230 passengers and a flying range of up to 3,850 nautical miles.

Certified by the US Federal Aviation Administration (FAA) in 2017, it is the fourth generation of Boeing 737 aircraft. China Southern, which has taken delivery of 34 of the jet and has another 16 on order, is the largest flier of 737 MAX aircraft in China.

Boeing advertises the 737 MAX as follows on its website: “The 737 MAX delivers enhanced efficiency, improved environmental performance and increased passenger comfort to the single-aisle market. Incorporating advanced technology winglets and efficient engines, the 737 MAX offers excellent economics, reducing fuel use and emissions by 20% while producing a 50% smaller noise footprint than the airplanes it replaces. Additionally, 737 MAX offers up to 14% lower airframe maintenance costs than the competition.”

However, design flaws in the 737 MAX’s Maneuvering Characteristics Augmentation System (MCAS) flight control software caused a Lion Air plane to crash in October 2018 in Indonesia and an Ethiopian Air plane to crash in March 2019 in Ethiopia, causing the airliner to be grounded worldwide.

Subsequent investigations revealed malfeasance at Boeing and the FAA, but changes were made and flights were allowed to resume in the US in 2020, Europe in 2021 and China in 2022 with flights to China by foreign airlines.

On December 28, 2022, the aircraft leasing company BOC Aviation announced that it had agreed to buy 40 new Boeing 737 MAX 8 aircraft to be delivered in 2027 and 2028.

At the end of the year, it owned a total of 392 aircraft, managed another 35 and had an additional 206 on order. Of these, 52 Boeing 737 MAX aircraft were already owned and 82 on order by the company. They will replace older, less fuel-efficient 737NG models.

BOC Aviation is headquartered in Singapore but is 70%-owned by the Bank of China. Other shareholders include American fund management giants Capital Research, Fidelity, Matthews and BlackRock. BOC Aviation is listed on the Hong Kong Stock Exchange and has offices in Dublin, London, New York and Tianjin to serve global airline companies.

While those orders look encouraging for Boeing’s bottom line, the 737 MAX faces stiff competition from the Airbus A320 family as well as the C919, COMAC’s new short- to medium-range single-aisle passenger jet.

By the end of 2022, customers in China had reportedly placed orders for a total of 565 A320s and 305 COMAC C919s but fewer than 120 Boeing 737s, including both the 737 MAX and older models.

The first certified C919 was delivered to China Eastern Airlines on December 9, 2022. After extensive flight tests, it is expected to begin commercial operations in the spring of this year. If so, it will mark the culmination of a development program launched by the Chinese government back in 2008.

Headquartered in Shanghai, COMAC is owned by the by State-Owned Assets Supervision and Administration Commission (SASAC) of China’s State Council (the chief administrative organ of the People’s Republic), state investment company Shanghai Guo Sheng, Aviation Industry Corporation of China, Aluminum Corporation of China, China Baowu Steel, Sinochem, China Electronics Technology and other corporations.

It is entrusted with the management of passenger aircraft development programs and the industrialization of civil aircraft in China. COMAC itself owns aircraft R&D, design, manufacturing, flight test, marketing, service and finance companies and is a shareholder of China-Russia Commercial Aircraft International Co, Ltd. It maintains offices in Los Angeles and Paris.

By 2025, the Chinese government wants the C919 to have 10% of China’s domestic commercial aircraft market. If the aircraft passes its flight tests and assembly operations are up to scratch – and the company isn’t hit somehow by escalating US sanctions on Chinese technology companies – then it probably will.

Important components of the C919 are either imported or made by joint ventures with American and European companies. These include the LEAP jet engine, which is manufactured by CFM International (a joint venture between GE Aviation of the U.S. and Safran Aircraft Engines of France) and flight controls, avionics, hydraulics, actuators, fuel systems and landing gear, which are made in China through joint ventures with Honeywell, Rockwell Collins, Parker and Liebherr.

Boeing is organized in the same way. As US industry consultant Lee Hall of the Clew Group points out:

“What most people miss is that Boeing is primarily providing an airframe with wires and hydraulics connected to supplier-provided systems such as cockpit avionics, engines, landing gear and interiors, all integrated together. These supplier-provided systems are all third party.

“As the COMAC C919 airplane program was being defined, some of these suppliers saw an alternative to their two main customers’ heavy-handed approach to pricing and terms, as well as potential for their market expansion.

“While the initial variant of the C919 is not as technically advanced or fuel efficient as the comparable Boeing and Airbus models, these suppliers are staking out a 50-plus year relationship, including the risks.

“Can they protect their IP and deter replacement through price and relationship building, or not? After all, if China is successful in building commercial airplanes, who will know that many of the parts came from Western countries?”

Indeed, to guard against possible US sanctions, Aero Engine Corporation of China is developing an alternative turbofan jet engine known as the CJ-1000A. In addition, the joint ventures with foreign companies serve as schools of technology and manufacturing.

In January 2021, the US government put COMAC on its “watch list” of companies linked to the Chinese military but it has not yet blocked the export of LEAP jet engines.

It seems likely that the interests of GE and other American and European components suppliers will prevail over the interests of Boeing. Indeed, Boeing CEO Dave Calhoun told investors on the company’s third-quarter 2022 earnings call last October that:

“My hope is that these two big geopolitical forces [the US and China] get together and endorse free trade again and the Covid policy ultimately lightens sometime in the future in China so that they can take more deliveries of airplanes… But it’s – it is really hard for me to find signals that things are going to change in China and move in our direction.”

Boeing’s latest commercial market outlook for China, announced on October 27, 2022, forecasts that China will need almost 8,485 new aircraft valued at about $1.5 trillion in the 20 years through 2041. Of these, 6,370 or 75% will be single-aisle jets serving short- and medium-haul routes.

The forecast assumes that passenger traffic will grow by 4.9% annually, above the world average, and that China will account for 21% of the global commercial aircraft market 20 years from now.

The latest forecast from Airbus is a bit more conservative in terms of unit shipments but assumes that single-aisle jets will account for 80% of the market and that the growth rate of Chinese passenger traffic will be 5.3% over the same period. Both Boeing and Airbus assume a post-Covid return to steady long-term growth of the world economy.

In this context, Boeing noted that “2022 marks the 50th year of Boeing’s footprint in China. In 1972, China ordered the first ten 707 jets to modernize its commercial fleet and expand its international network.

“Today, Boeing airplanes are the mainstay of China’s air travel and cargo system, as more than 2,000 of them have been delivered to Chinese operators in the past five decades. When releasing the 2022 China CMO, Boeing reiterates its commitment to support China’s air transportation system in the next 50 years with its world class products and services, including the 737 MAX, 787 Dreamliner and 777X families.”

Airbus overtook Boeing to become the world’s largest supplier of commercial aircraft in 2019. In China, data from aviation analytics company Cirium Fleets Analyzer shows Airbus taking a slight lead a decade ago, with the gap suddenly widening in 2019. In June 2022, the Airbus A320 overtook the Boeing 737 to become the best-selling passenger jet family in the world.

In 2022, Airbus delivered 661 aircraft and received new orders net of cancellations for 820 worldwide; the comparative figures for Boeing were 480 and 774. The difference came down largely to China, where Airbus delivered more than 100 aircraft while Boeing delivered fewer than 10.

In a market led by demand for single-aisle passenger aircraft, Airbus and COMAC have the advantage in China. Until a few years ago, Boeing could have expected to receive about 40% of all new orders in China. Now, its recovery hamstrung by the US-China trade and tech tensions, it could be destined to remain a distant third in the high-potential market. asiatimes.com