China’s risky move to ban Boeing’s planes

China’s decision to direct its airlines to halt deliveries of aircraft and parts from Boeing, the latest shot in the tit-for-tat trade war between China and the US, will hurt the already-struggling aircraft manufacturer. In the longer term, it might also rebound on China.

In the near term, the impact on Boeing, America’s largest exporter of manufactured goods, will be relatively modest, but still painful.

A Boeing 737 Max jet. China has banned deliveries of aircraft and parts from Boeing.Credit: nna\advidler

It had planned delivery of 27 Boeing 737 Max planes to China this year, along with some 787s and 777Fs and has about 10 Boeing 737 Max aircraft built and ready, or almost ready, for delivery.

It is unclear if some of those planes, ordered and built before China’s directive, can still be delivered. If they can’t, there is an estimated $US1.2 billion ($1.9 billion) of cash at risk for Boeing, although, if the orders are cancelled, it could redirect those planes to other buyers.

Should the ban persist, Boeing, which has a backlog of about 6000 planes ordered but yet to be built, won’t have any trouble finding buyers outside China.

Its own production woes, created by safety issues dating back to the two fatalities in 2019 and the door plug that blew out of an Alaska Airlines 737 Max 9 last year, have resulted in massive delays to its ability to meet the global orders for its aircraft. Planes previously earmarked for China can be delivered elsewhere.

Probably of greater immediate concern for Boeing and its 10,000-odd suppliers are the 25 per cent tariffs Donald Trump slapped on imports of aluminium and steel, which will drive up the costs of a group that lost almost $US12 billion last year and haemorrhaged $US14.3 billion of cash.

Airlines are already saying that they will pause deliveries of planes they’ve ordered rather than pay costs inflated by the tariffs. That’s an issue that will also confront the other major aircraft manufacturer, Europe’s Airbus, whose US sales will be hit by Trump’s 20 per cent “universal” tariff on imports from Europe.

Longer term, if China’s ban were to persist, it would be very damaging to Boeing and advantageous to Airbus (once it clears its own backlog of orders).

China is the world’s key aviation growth market, accounting for about 20 per cent of the world’s expected demand over the next 20 years. Boeing has forecast China will need about 8500 new planes in that period.

Before its safety record was blemished, the 737 Max fleet grounded and its production lines temporarily shut down, China accounted for almost 40 per cent of Boeing’s 737 deliveries.

Boeing has/had existing orders from China’s three big domestic carriers – Air China, China Eastern and China Southern – for 179 planes and said last year it expected China would generate about 20 per cent of its sales in the long term.

It’s a key market for Boeing but one in which, due to its self-inflicted problems, it has been gifting market share to Airbus.

While Donald Trump accused China on Tuesday of reneging on the “phase one” trade deal the countries signed in early 2020 to end the first of his trade wars – a deal which saw China commit to buying $US200 billion more US commodities and goods, including aircraft, than it had in pre-tariff 2017 – the ban on Boeing is retaliation for Trump’s 145 per cent tariff on China’s exports.

It’s a move not without risk for China, both near term and in the future.

It has effectively made Airbus a near-monopoly supplier while the ban lasts, but it, too, also has a backlog, totalling more than 8500 orders. There’s no instant replacement for the planes Boeing would have supplied.

China created the state-owned Commercial Aircraft Corp of China (COMAC) in 2008 and has since ploughed tens of billions of dollars into COMAC’s development.Credit: AP

China does have a fledgling domestic aircraft manufacturer, Commercial Aircraft Corporation of China (COMAC), and grand ambitions (first made public in the “Made in 2025” national strategic plan unveiled a decade ago) to develop the domestic capabilities to build its own aircraft and compete head on with the global duopoly of Airbus and Boeing.

That ambition was partially realised in 2023, when COMAC’s C919 narrow-bodied jet, designed to compete with the 737 Max and Airbus’ A320, made its first commercial flight.

COMAC has raised its production rate for the C919 this year from the 30 aircraft it will actually build to an annualised rate of 50 a year. It delivered only 13 planes last year, so is ramping up its production rate significantly to meet orders from, predominantly, China’s major domestic airlines.

COMAC is also developing a long-range wide-bodied plane, the C929, although that’s probably years away from commercial production.

The challenge for COMAC, and China, is that the C919 incorporates many components sourced from the US.

Its engines are built by a joint venture between GE and France’s Safran. Its avionics and electronics, communications and navigation systems – and its wheels and brakes – are produced by Honeywell. Its weather radar comes from Rockwell Collins and its fuel system from Parker. There are other parts that are imported from the US.

While Beijing has committed considerable funding to the development of a Chinese-built engine and the other components of modern passenger jets, that’s a long-term project.

Meanwhile, the ban on planes and parts from the US will disrupt COMAC’s production, increase its costs (if it can source the parts from the huge stocks of Boeing parts held outside the US) and jeopardise China’s ability to maintain both the COMAC and Boeing planes already operating.

With Trump now urging Beijing to make him an offer on tariffs, saying the ball was now in China’s court (even though he lobbed it there) there is, of course, the possibility that there will be a negotiated end to the US and Chinese tariffs that reduces them to something less than the current levels, which effectively end almost all trade between the countries.

Unless and until China can develop the capabilities to build aircraft with all, or mostly, locally produced components, and COMAC can create the global network of maintenance sites and the inventories needed if it is to compete head-on with Boeing and Airbus, China needs Boeing.

For the moment, the ban gives it leverage. The longer it stays in place, however, the more damaging it will be to China’s carriers and Beijing’s grand global aviation ambitions.

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