Customers have called a halt on more than 300 orders for new aircraft so far this year, Boeing revealed this week, with 150 cancellations for its troubled 737 Max series in March alone.
Airbus is wrestling with a similar crisis: half of the aircraft it finished in the quarter haven’t been delivered to customers and production of the A320 – one of its most popular planes – has been slashed back a third.
That’s awful news for General Electric (GE), which supplies about two-thirds of the engines powering the duopoly’s fleets. GE has already furloughed half the workforce at its aircraft-engine manufacturing unit and it pulled its earnings guidance for the full year last week, citing uncertainty about the future.
At times like this every sale should become even more important, you would think. But that didn’t seem to be the view of US legislators plotting to block exports of the Leap-1C engine – produced in a joint venture between GE and French aerospace company Safran – to China’s aspiring aerospace giant Comac.
Much to GE’s relief, the Trump administration eventually approved the licence to sell the engines last week, despite demands that it take a more aggressive line in controlling the export of high technology goods to China. The political mood is darkening about China’s purported responsibility for the Covid-19 pandemic too: lawmakers put forward at least 20 China-related bills in March, ranging from demands that the Chinese cover the costs of responding to the pandemic in the US to calls for an investigation into how the original outbreak was handled by the Chinese government.
However, in narrower terms it was harder to make the case that GE’s engines shouldn’t be exported as a way of protecting American technology from Chinese catch-up. GE has been supplying the same engines to Comac since 2014, which has six aircraft flying with them in its test programme. Airlines in China operate Boeing and Airbus planes powered by variants of the same engine as well.
Donald Trump had also made it clear that he was opposed to any restrictions on sales. “I want China to buy our jet engines, the best in the World,” he tweeted in February. “I want to make it EASY to do business with the United States, not difficult.”
Over the longer term the Chinese are talking about Comac’s C919 passenger jet as a challenger to Boeing and Airbus, although claims that the aircraft is a genuine competitor are premature.
Prices for the C919 could be a third lower than its peers but it will fly shorter distances and carry fewer passengers and less cargo than its best of breed short-haul competitors.
Indeed, when the C919 finally comes into service in two years time (we’ve been talking about it since 2009: see WiC31) it seems likely to operate mostly on domestic routes, especially shuttle flights between China’s bigger cities. It will also be flown almost entirely by Chinese carriers, who make up the large bulk of existing orders.
Interest from established international airlines will be subdued, as they will wait to see the performance of the aircraft before considering any orders themselves.
The greater threat to a company like Boeing was a shorter term one – that a ban on GE’s engine sales spilled over into a much bigger dispute, risking retaliation in a market where it makes a quarter of its sales.
Already deep in crisis after the grounding of the 737 Max (China’s aviation regulators were the first to respond to two fatal crashes; see WiC444), Boeing is counting on the Chinese as the customers of the future. The company forecasts that the country’s airlines will need 8,090 new planes between now and 2038 – sales that it won’t want to jeopardise with a row over restrictions on sales of the Leap-1C.
A ban on engine exports would have been disastrous for “crisis-hit” firms like Boeing and GE, who are going to need many more sales in the Chinese market to survive, the Global Times agreed.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.