The development stories of the COMAC C919 and the Boeing 737 MAX could not be any different, even if the fingertips of the greatest writers touched upon them. The two narrow-bodies that aim to conquer the elusive and cash-rich market have encountered difficulties that are very unique to them. Yet they seemingly share one attribute across the board – they became political pawns to two conflicting sides.
C919 and 737 MAX competing
Two aircraft aim to satisfy the future demand for narrow-body jets. In its latest Commercial Market Outlook for 2020-2039, Boeing estimated that the single-aisle fleet will grow from 16,520 aircraft in 2019 to 33,850 in 2039. In China alone, the fleet is predicted to grow from 3,050 to 6,630, more than doubling in its size. 6,450 of those narrow-body aircraft will be new, estimated Boeing.
Manufacturers on both sides of the Atlantic Ocean have long realized the potential found in Asia, and particularly China. If Airbus established its Tianjin Final Assembly Line (FAL) in 2008 to assemble and deliver aircraft locally, Boeing was late to the party. The US manufacturer opened the Completion and Delivery Center in December 2018, when it delivered a Boeing 737 MAX to Air China. The Zhoushan, China located center will complete assembled 737s and deliver them to local airlines.
“This is a significant milestone of Boeing’s efforts to deepen its footprint in China, as well as to support the growth of China’s airline industry, opening an era of the collaboration between the two airplane manufacturers of us,” stated one of COMAC’s executives Zhao Yuerang during the inaugural delivery.
The collaboration could soon run its course. For one, the C919 and the 737 MAX are competing for the same slice, to transfer from anywhere between 150 to 200 passengers on short to medium-haul routes. While the Boeing product is bigger in its size, the C919 has an argument that arguably the 737 MAX will never have – the C919 is a Chinese made product. The COMAC ARJ21, a regional jet made by a Chinese manufacturer, has been slowly entering service throughout the country. Out of 616 orders, 45 so far have been fulfilled, as COMAC ramps up production with a second production line.
At first glance, the fact that it is a Chinese made product looks like a double-edged sword. On one hand, the local government is more than keen to see COMAC-made jets fly passengers throughout China, reducing its dependence on foreign-made products. That provides a somewhat healthy demand for the ARJ21 or the C919, as the aviation industry is set to only boom in the country. On the other, the experienced Airbus-Boeing duopoly will be hard to break. As politics come into play, COMAC monopolizing China’s market would be a hard hit to the duopoly – yet it won’t be the chain that breaks the link.
With the official foreign policy of China looking to establish its presence globally, there might be opportunities elsewhere other than home that could threaten the duopoly.
For example, the Republic of Congo ordered three COMAC ARJ21 aircraft in November 2014. A year prior, the Chinese construction firm Weihai International Economic & Technical Cooperative participated in the construction of a new terminal at Brazzaville International Airport (BZV), located in the capital of the Republic of Congo. With various investment projects across the globe, especially developing regions, China aims to “deepen industrial co-operation so that industrial development plans of different countries will complement and reinforce each other,” the Belt and Road Initiative (BRI) was described in the thirteenth five-year plan, introduced by the Chinese government in 2013.
“Trade creation is greater in regions where connectivity is likely to be less problematic, and extra-bloc effects on exports and imports for BRI-participating economies are strong when they originate from trade blocs where either China or the United States are members,” concluded a report by the Organisation for Economic Co-operation and Development (OECD), published in 2018. The BRI initiative had around 3,000 projects underway combining for a value just shy of $4 trillion, according to Refinitiv, a provider of financial markets and infrastructure data.
Meanwhile, the US and China have been locked in a trade war since 2018. Despite its own forecasts, Boeing has not shaken hands with a Chinese operator for a passenger jet order since November 2017. Its most recent glimpse of hope was caught in May 2020, when China Cargo ordered a measly two Boeing 777F aircraft. Meanwhile, Airbus managed to snag an order for 40 A321neo aircraft in January 2020, when China Aircraft Leasing Group (CALC) signed up for the re-engined A321. Another example could be the fact that during Xi Jinping’s visit to France in March 2019, the two countries announced an order for 300 various Airbus aircraft. While the sweet as honey order has attracted controversy regarding the true number of units ordered, the deal was motivated by political considerations, according to people familiar with the matter, reported Reuters in April 2019.
While the duopoly’s manufacturers are tangled in trade wars, China’s foreign policy could boost COMAC sales. The ARJ21, the already-flying regional jet and the C919, still in its flight testing phase, are the only options that the Chinese manufacturer could potentially offer to any willing customers. However, with the multiple investment projects across various countries going on, its political soft power could sway more countries to join the list of foreign operators of Chinese-made jets.
But before COMAC could make a move, the US had made its own.
COMAC military ties
The intra-connectivity of state-owned companies, while fruitful, can be detrimental as well. Especially as the US Department of Commerce is about to tie COMAC to the military, preventing the manufacturer from purchasing US-built goods.
The Department has prepared a draft list of companies that are tied to the Chinese military, reported Reuters on November 23, 2020. The listed companies, which includes COMAC and Aviation Industry Corporation of China (AVIC), including its subsidiaries, would not be able to purchase crucial parts from US-based companies.
The ARJ21, powered by the General Electric CF34, and the COMAC C919, powered by the CFM International LEAP 1-C, would lose their power plants. In addition to engines, Honeywell, a US-based manufacturer, provides the C919 with the Auxiliary Power Unit (APU), flight management and cockpit systems. Since CFM International is a subsidiary of General Electric and is based in the US, adding COMAC to the list would be a hard hit to the development program of the C919. With no immediate engine or other parts replacement of its own, the C919 development could be halted indefinitely. Potentially, this could once again deter any buyers as the instability attached to buying either the ARJ21 or C919 is simply not worth it, if COMAC is not able to fulfill its order obligations under certain timelines due to the difficulties of obtaining parts.
Yet China has one trick up its sleeve – the Boeing 737 MAX.
In no rush
The Civil Aviation Administration of China (CAAC) was one of the first authorities in the world to ground the Boeing 737 MAX when the second fatal accident in Ethiopia occurred in March 2019. While the Federal Aviation Administration (FAA) has kick-started the process of the aircraft returning to service, CAAC has reiterated that it is in no rush.
The CAAC will follow its own standards when to clear the Boeing 737 MAX to fly once again, including the fact that it has no set timeline, according to reports by local media.
The MAX is a crucial piece for Boeing in terms of acquiring market share in the near-term in China, as the narrow-body caters to the massive aforementioned demand in the Asian country. It once again faces the same risk as the C919 does outside of China – delays and uncertainties, in addition to the tarnished brand name. Unlike COMAC, Boeing is a private entity and needs cash to start shaping some kind of recovery from the two crises it has faced throughout 2019 and 2020.
After a slump in Q1 2020, China’s economy is on the up again, as Gross Domestic Product (GDP) grew by 4.9% in Q3 2020 compared to the quarter a year prior. Retail sales grew by 3.3% in September 2020 compared to September 2019, indicating that consumers are more than willing to purchase goods and possibly crisscross the country via air, according to China’s National Bureau of Statistics.
While the US economy has begun its slow recovery, as in Q3 2020 the GDP grew by 33.1% compared to Q2 2020, it still did not offset the pitfall sustained in the latter quarter. Disposable personal income (DPI), which has begun to slowly recover in July 2020, was again offset by a dip in August 2020, and was not counteracted by a 0.9% increase the following month, Bureau of Economic Analysis (BEA) data showcased.
For Boeing, cash flow from China could very well help weather the current storm. However, a worsening relationship between the two countries could also very well worsen the situation for the manufacturer that is already in turbulent skies.
Questions towards Boeing’s future in China could also be raised – has the strained relationship instilled permanent damage within the diplomatic circles? Is Airbus ever-increasing presence in China going to affect the sales of not only the Boeing 737 MAX but also the Boeing 787 and the 777X, considering the European manufacturer also has a locally-established Completion & Delivery Centre (C&DC) that can provide the finishing touches to the A330 and, soon enough, the A350?