Boeing’s China Problem

Boeing’s China Problem

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for free for two months at To, from, or through China, more than half
a billion passengers fly each year. By 2035, that number is expected to be 1.3
billion. It is one of the fastest growing aviation
markets in the world, is home to what is believed to be the future busiest airport in the world,
and is expected to soon surpass the US to become the single largest aviation market
in the world. Last year, a new aircraft was delivered to
a Chinese airline every 21 hours. That’s $35 billion worth of aircraft purchased
in a single year. All of this, however, represents a considerable
problem for the world’s largest aircraft manufacturer—Boeing. You see, the reason China is a problem for
Boeing is also part of the reason why China is already such an enormous market for them. While the US is resoundingly Boeing’s number
one customer, at least partially propped up by government defense contracts, China safely
holds the number two spot. Excluding North America, China, in fact, singlehandedly
earns Boeing more money than every continent in the world. Now, not only is China a fierce battle-ground
between Boeing and Airbus, even if Boeing has a slight overall edge in market share,
but the company now also faces a trifecta of issues potentially hindering its future
dominance in this ultimately crucial aviation market. The first of these issues has to do with Boeing
brand new yet beleaguered airplane—the 737 MAX. Prior to the MAX’s grounding, China was,
by a wide margin, the largest operator of this airplane. Its airlines had a total of 97 MAX’s while
US’ airlines, representing the second largest customer group, only had a total of 72. This is an aircraft particularly well-suited
to China’s geography. With a number of smaller, secondary or tertiary
cities, China’s airlines are increasingly focused on developing non-stop flights bypassing
the major hubs of Beijing, Shanghai, and Guangzhou, or fights to lower demand cities outside of
China. This is especially true given the huge number
of smaller airlines operating in China who have established themselves by setting up
hubs in some of the country’s smaller cities whose populations more recently started the
transition into the country’s middle and upper classes than those of the country’s
tier one cities. Of course, flying to or from these smaller
cities means lower demand for seats, however, the longer-range, smaller-capacity capability
of the 737 MAX perfectly suits this mission. That allowed Chinese airlines to set up, in
an economical manner, flights like Jinan to Singapore, Guangzhou to Lahore, Ürümqi to
Bangkok, or Hangzhou to Hotan—all five or six hours flights with minimal demand. The 737 MAX was an aircraft perfectly suited
for China and Boeing knew it. This suitability and focus was demonstrated
by Boeing’s decision to set-up an aircraft completion center in Zhoushan, China. While aircraft would continue to be primarily
assembled in Renton, Washington, they would be flown over to Zhoushan without the interiors
completed. In Zhoushan, their seats, overhead bins, and
basically the entire rest of their interiors would be installed by Chinese workers in this
Chinese factory. Having a ground presence in China would appease
the government, and by extension airlines, and the hope was that this would help convince
them to buy Boeing jets considering that their purchase provided Chinese jobs. This was especially necessary considering
that Airbus already had an even more extensive final assembly line in the country for its
competing a320 jets. Given the MAX’s suitability, though, Chinese
airlines bought an enormous number of these planes. In addition to the 97 already delivered, Chinese
airlines had almost 500 of them on order but then, of course, the MAX crashed, and then
it crashed again. China’s Civil Aviation Administration, eager
to maintain the country’s recent streak of aviation safety, quickly grounded the MAX
after its second crash making China the first country to do so. This was a rather shocking move as historically,
every country’s aviation regulator more or less just followed the lead of the American
FAA in these decisions. It was thought that, if the FAA said it was
safe, it was safe, an in this case, the FAA initially asserted their confidence in Boeing’s
737 MAX and chose not to ground it immediately. Now in the aftermath of this, the grounding
of the MAX has presented Beijing with three gifts. First, especially in the case of the state-owned
airlines and leasing companions, the Chinese have a much stronger negotiating position
than before with Boeing as the company works to regain the momentum it had before. Prices, which typically vary widely from airline
to airline and deal to deal, could end up lower. Secondly, China’s three largest airlines,
which are all state-owned, are asking Boeing for compensation for the grounding of their
jets. By extension, this is essentially the Chinese
government, the very one that holds the keys to the Chinese aviation market, asking Boeing
for compensation and, if Boeing doesn’t comply in what is possibly largely a symbolic
move, the Chinese government could decide to reduce future Boeing orders, potentially
in favor of Airbus. While Boeing is seemingly setting itself up
to offer compensation to airlines affected by the MAX’s grounding, whatever it gives
to the Chinese airlines, however favorable the company is with them, they will have to
match this precedent for their compensation with every other of the world’s affected
airlines. What could end up the most formidable MAX
challenge, though, is that the Chinese aviation regulator has now established itself as a
leader. It was them who made that first decision to
ground the jet that started the domino effect of other national regulators grounding the
MAX. Considering China’s regulator now successfully
flexed their muscle in this space, the American FAA, which has deep links to Boeing and has
allowed Boeing to essentially self-certify certain aspects of their new aircraft, has
lost some prowess in its role as, in a sense, “the world’s aviation regulator.” Therefore, not only will China’s regulator
likely take a more independent route in re-certifying the MAX once its issues are resolved, it will
also possibly feel free to make its own independent decisions on the airworthiness of future aircraft. This is a precedent that should have Boeing
concerned. Now, a smaller but significant second issue
for Boeing is the ongoing trade-war between the US and China. While Boeing has not yet encountered clear
implications from this trade-war, some speculate that the company could be used as a pawn. You see, China’s three largest airlines—China
Southern, China Eastern, and Air China—are all majority government owned and therefore
their orders can be used as a sort of political tool. To date, these three airlines’ fleets are
slightly weighted towards Airbus planes, despite the country’s airlines as a whole on average
having a slight preference towards Boeing, but they still do operate a significant number
of Boeing planes. While Boeing is not, of course, a state-owned
company, they are the US’ largest exporter and a major American employer and therefore
the US government and Department of Commerce works hard to prop them up. As the largest international market for Boeing,
China has the keys to either help or hurt America’s economy through how many planes
it decides to order. In the height of the US-China trade war, in
March, 2019, Chinese President Xi Jinping announced a massive $35 billion order of 300
Airbus aircraft by China’s state-owned aircraft leasing company. While you can never know for sure, this certainly
was viewed as a move at least partially intended to send a message to the US. Meanwhile, since the beginning of the trade-war,
there has been a noticeable lack of significant Boeing aircraft orders by Chinese airlines. These, however, are most all fairly short-term
threats. The trade-war will pass, the 737 MAX will
take the skies again, but what is perhaps Boeing’s largest problem is still to come. Their largest threat is that China is building
their very own plane. It’s being built by the Commercial Aircraft
Corporation of China or COMAC. Now, to recap, in the commercial jet aircraft
manufacturing space, there’s of course Boeing and Airbus, then there’s Embraer, which
is in a joint venture with Boeing, and Bombardier, who’s flagship C-series program was bought
by Airbus. Therefore, Boeing and Airbus control an enormous
majority of the industry. Aside from that, the only major unaligned
aircraft series is the Bombardier CRJ regional jet who’s manufacturing rights are in the
process of being bought by Mitsubishi. There’s then the Russian United Aircraft
Corporation producing a small number of Ilyushin, Tupolev, and Sukhoi jets and an even smaller
number of commercial jets produced the the Ukrainian Antonov company. These Russian and Ukrainian aircraft tend
to mostly be bought and operated by Russian and Ukrainian airlines, so, in terms of global
aircraft competition against Boeing and Airbus there really is none. It is the textbook duopoly. COMAC, however, could break that. It may surprise some to hear that there are
already COMAC aircraft flying in China’s skies—the ARJ21. This small, 78 passenger jet was COMAC’s
first significant foray into commercial aircraft manufacturing and it has been, to put it bluntly,
a disaster. When it was first announced in 2002, the aircraft
was supposed to take the skies in 2005. In reality, though, the first prototype wasn’t
completed until 2007, the first test-flight didn’t happen until 2008, and then after
delay upon delay upon delay, the first commercial flight didn’t happen until 2016. Since then, the issues have not let up. The aircraft was plagued with reliability
and capability issues and, to date, only fourteen are in commercial service. Now, it would be quite reasonable to question
why this aircraft could threaten Boeing especially considering that Boeing doesn’t even develop
an aircraft in a similar size to the ARJ21. The answer is that it doesn’t. The aircraft that should make Boeing nervous
is this—the Comac C919. Worth noting is that Boeing is actually in
a joint venture with COMAC for its final-delivery plant in Zhoushan, but that certainly doesn’t
stop the companies from competing. Just by looking at this plane you can tell
it’s built to compete directly with Airbus’ a320 and Boeing’s 737. It’s designed to carry pretty much the exact
same number of passengers and it even uses the same engines at the a320neo and 737 MAX,
but let’s be clear, the c919 is not the a320 or 737. It’s a brand new aircraft by a brand-new
aircraft manufacturer and it’s abnormal for even Airbus or Boeing’s new aircraft
introductions to go smoothly. Designing aircraft is difficult. The c919 is still in its testing phase so
its true performance and reliability statistics are not yet verifiably known, however, in
all honesty, the success of this plane has less to do with its actual capability than
probably any other plane in the world. The success of this plane has to do with whether
the Chinese government decides it will be successful. Of China’s eight largest airlines, just
one, Hainan Airlines, is not government owned. China’s government holds the keys to hundreds
or thousands of aircraft orders—why would it order from anyone but itself? Unsurprisingly, quite a few of the C919’s
orders to date have come from Chinese state-owned airlines and aircraft leasing companies. Its only non-Chinese order came from GE’s
aircraft leasing division—possibly as a vote of confidence considering the C919 uses
GE engines. The real test on whether the C919 is actually
a good plane will come once it enters commercial service, its reliability and capability is
exhibited to the world, and foreign airlines consider whether they want to order it. With China’s expertise in low-cost, high-tech
manufacturing, it could possibly prove a low-cost alternative to the a320 or 737 which has had
some airlines intrigued—most visibly Ryanair who’s CEO said he would be seriously interested
in the aircraft if a 200 seat variant was developed. China also has increasing geopolitical power,
especially in pockets of Africa which also have fast developing aviation markets, and
this could translate to a number of politically aligned countries choosing to buy and operate
COMAC planes. Overall, the real challenge to Boeing is the
opportunity. If they miss the opportunity to become a dominant
player in the world’s future largest aviation market, they could have trouble maintaining
their position as the world’s largest aircraft manufacturer. Being number one means that staying number
one is the expectation, not the goal, and so the Chinese market, while it is an opportunity,
is also a requirement. Now, in a similar vein, anyone who’s been
number one in anything knows that staying there requires continuous improvement. That means that no matter if you’re at the
beginning of your career or if you’re already at the top, you know that you should be constantly
improving yourself. Part of the way that I make sure I’m always
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27 thoughts on “Boeing’s China Problem

  1. Like the floors that are made of noodles in china, to the bridge that just crushed 3 cars it landed on in china, I'll wait till the planes they produce starts killing in masses then watch how it will all fall. As the reference called Made In China.

  2. Like the floors that are made of noodles in china, to the bridge that just crushed 3 cars it landed on in china, I'll wait till the planes they produce starts killing in masses then watch how it will all fall. As the reference called Made In China.

  3. Not mentioned in this entire video (surprising): Chinese corporate espionage and Boeing's outsourcing of component production globally for the 787 and MAX lines as a move to weaken unions – but also gave technical and blueprint data directly to Chinese contractors, which have most likely been appropriated directly into COMAC. The DOJ actually directly indicted Chinese nationals for engine data hacks in 2018.

  4. WP hides the fact and makes you wonder how can it hurt Boeing; tadaa it's COMAC C919 what do you know dumb people of planet Earth

  5. Y buy made in china plane?.. it’s still a copycat of boeing and airbus. That is why don’t manufacture in china coz they will only copy your product…

  6. The greatest generation spawned the so-so generation who spawned the worst ever generation. THAT is the problem in a nutshell.

  7. The joker in the deck is that jet aircraft are insanely destructive to the entire atmospheric blanket. Jets pour massive pollution into the stratosphere, and most of the one hundred plus chemicals are compounds that have been synergised by the intense forces and conditions inside the engine and outside of it in the near vacuum of the frigid upper atmosphere. The intense heat deposition is very likely to be the primary cause of the terrible weather events that we are seeing globally. The aviation winner will be the ones who are first to develop a high speed electric aircraft. This isn't pie-in-the-sky nonsense. The pundits believe we can have fast electric planes in ten years due to advancements in frictionless magnetic levitation motors combined with super conductors and massive improvements in poly dimensional photoelectric cells. We already have small electric aircraft flying, so the future must go in this direction. Jets are obsolete and far too polluting, and the traffic just grows and grows.

  8. Boeing lands a landmark contract fitting out nuclear missiles to use against the US. Another first for the Globalists at the US Chamber of Commerce

  9. The Chinese government owns the companies, which means they are in control of the country. The western companies are corporate owned, and they control the governments. It means less government stability. It also means higher cost for the consumer because we must pay for the corporate shareholders profits.

  10. so you have boeing cutting corners for some extra bucks.. and you have huge companys like google, facebook and the rest spying on you.. or infrindging on your 1st amendment rights.. you have companys like the NBL supporting mainland china communism, because its in their monetary interest to do so. noone has your best interest in mind. none of them do.
    do you expect boeing to really be any different, even though in the past they made things for our government?
    in the end its always about the money, even when it comes to building things that fall apart instead of the quality they use to have.. its the same for their politics. money > everything else. im not against making a buck, but there is a point where morality has to come in… unless your immoral of course. which they are. the love of money is the root of all evil. should we be surprised? the only question left.. will google and the rest of these people eventually own you, telling you what is ok to think, or what to buy, etc? this trail is farther reaching than you might at first think.

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