December 9, 2022, marked a monumental day for China’s commercial aviation industry when the Commercial Aircraft Corporation of China (COMAC) delivered the first COMAC C919 to its launch carrier, China Eastern Airlines.
While not the first Chinese mass-produced aircraft, the C919 is the country’s first direct shot at attempting to overthrow the Airbus-Boeing duopoly in the best-selling narrow-body aircraft market segment. The Chinese manufacturer’s other jet, the ARJ21, which was recently delivered to the first foreign airline in Indonesia, has not amassed the same attention and order book compared with the C919.
However, the C919 has also failed to amass similar levels of attention as the Airbus A320 or Boeing 737 families of aircraft. On the one hand, it is understandable. COMAC outselling an already-established aircraft type with its own supporting infrastructure would be highly unusual. On the other, knowing how tightly controlled business enterprises are in China, it is slightly questionable that state-owned carriers have not ordered thousands of C919s from a state-owned manufacturer.
Perhaps there has to be a fine balance between delivering results and supporting the local industry. After all, the various A320 and 737 variants have proven to be capable aircraft and have helped airlines save money on fuel, maintenance, and other costs by being more efficient with each generation. The C919, on the other hand, must still be put through its paces before it can even fly passengers. China Eastern Airlines will need to do this before the Chinese narrow-body aircraft begins carrying paying customers in early 2023.
Still, the two narrow-body aircraft from the duopoly have sold very well in the country. According to Airbus’ latest Orders & Deliveries data, as of November 30, 2022, Chinese airlines have ordered 1,638 variants of the A320 family, including current engine (ceo) and new engine option (neo) aircraft. Meanwhile, Boeing’s data as of the same date shows that carriers in the country have signed up for 1,348 various variants of the 737 family, ranging from the 737-200 to the latest iteration, the 737 MAX. Some orders are associated with third-party leasing companies, including those based in other countries that have delivered aircraft to Chinese airlines and might not showcase the full scale of orders.
It is no surprise that both Airbus and Boeing have managed to establish a presence in China. The pair have long sought to become the go-to manufacturer for the Chinese government, securing business in a country where demand for air travel has blossomed, including domestically. Even the COVID-19 pandemic, which is still affecting China with strict policies and huge outbreaks, should not derail that growth.
But the duopoly’s players have each adopted different approach to handling their business in China.
Emphasizing domestic production in China
The C919, nevertheless, could become a headache for executives at both Airbus and Boeing, especially considering how much emphasis was put on innovation-driven development in China in the latest five-year plan.
According to a summary by PwC, the government considers self-reliance and self-strengthening in science and technology the pillars of national development strategy.
“The innovation-driven strategy is followed by an initiative to build up a modern industrial system,” the summary continued, emphasizing that the 14th five-year plan has put more emphasis on that strategy compared with the 13th five-year plan. “The Proposals stresses that China will unswervingly build itself into a manufacturing power, put more emphasis on quality and enhance its strength in cyberspace and digital technology, signaling the focus and general orientation of our roadmap to the future modern industrial system,” PwC’s analysis of the latest economic policy in the country continued.
“In addition, it also underlines that China will foster strategic emerging industries, such as the new generation information technology, biotechnology, new energy, advanced materials, high-end devices, new energy vehicles, green environmental protection, aerospace, and marine equipment, and accelerate the development of modern service industry, new infrastructure, and digital economy,” one of the Big Four accounting firms concluded.
Does this mean that the opportunity for Airbus and Boeing to sell and deliver aircraft will vanish sooner rather than later?
Well, the newest five-year plan also reiterated the importance of the dual circulation strategy. According to Breugel, an economic think tank established in Brussels, Belgium in 2005, since Donald Trump, the now-former United States president, began his trade war endeavors against China, the country has been attempting to rely on a policy that insulates “the domestic market from the rest of the world by eliminating any bottlenecks, whether in terms of natural resources or technology, so as to vertically integrate its production and achieve self-reliance served by China’s huge domestic market”.
Trade tensions have continued to boil, despite a meeting between the current US President Joe Biden and Xi Jinping in November 2022, where the former proclaimed that both sides “can manage our differences, prevent competition from becoming anything ever near conflict, and to find ways to work together on urgent global issues that require our mutual cooperation”.
The latest flareup was when the US banned the sale of advanced chips and chip-making tooling to China in October 2022, with Biden remarking that 0% of advanced chips were manufactured in the US and that is why “China was lobbying in the United States Congress against passing this legislation [the CHIPS and Science Act – ed. note]”. Those restrictions began to spill over to other countries, such as the Netherlands, even after the meeting in Indonesia.
And that is where a fundamental difference between the US and the European Union (EU) is shown. The Netherlands, while planning on joining the 50-state country in restricting chip access to China, would “not copy the American export restrictions one-to-one,” stated Liesje Schreinemacher, the Minister for Foreign Trade and Development Cooperation of the Netherlands, in an interview with NRC, a local daily newspaper. Schreinemacher also emphasized that talks are not done just yet because “more time is needed for that”.
Diplomacy matters
Still, not all trade wars are fought equally and not all of them affect every industry within a region or geopolitical area.
In July 2022, Airbus announced a deal for 292 A320 aircraft with various Chinese carriers and the list includes Air China, China Eastern Airlines, China Southern Airlines, and Shenzhen Airlines. In November 2022, Airbus’ Tianjin Final Assembly Line (FAL) in China began assembling its first A321 aircraft, the largest of the A320 family. These are just some of the examples showcasing the fact that Airbus has managed to successfully conduct business in the country. For Boeing, though, orders from China have been an area of struggle. In the past five years, China-designated customers in the manufacturer’s Orders & Deliveries data have ordered 59 aircraft, with the last order coming in September 2021. Then, Air China signed up for five Boeing 777F cargo aircraft, which means that the last passenger aircraft that was ordered by a China-based company was the 737 MAX when the Industrial and Commercial Bank of China’s (ICBC) aircraft leasing arm ordered three of the type in August 2020.
Interestingly, though, China “recycled” the 292-strong Airbus aircraft order from July in November 2022, when the state-owned China Aviation Supplies Holding Company (CASC) announced a deal for 140 aircraft from the European Original Equipment Manufacturer (OEM): 132 A320-family jets and eight A350s. The day of the announcement correlated with German Chancellor Olaf Scholz’s visit to the country. Industry sources noted that the eight A350s were already ordered in 2019, while the narrow-body aircraft part of the deal was already included in Airbus’ backlog in July 2022, according to Reuters.
Announcing deals in coordination with diplomatic visits was nothing out of the norm in China or in the aviation industry, for that matter. When then-French President Jacques Chirac visited the country in October 2006, Airbus announced a deal for 150 A320 aircraft and, most importantly, the manufacturer and Chinese officials finalized an agreement to establish the Tianjin FAL starting in 2008. Airbus broke that record by agreeing to an order for 160 jets destined for Chinese airlines in November 2007.
That record-breaking order also coincided with an official visit from Nicolas Sarkozy, the successor to Chirac.
Boeing’s relationship with the country is much more complicated. When China ordered the first aircraft from the Seattleite OEM in 1972, the US did not even have a formal diplomatic relationship with China. The first order was for 10 Boeing 707 aircraft, the first-ever jetliner from the manufacturer, and came shortly after Richard Nixon visited China the same year in a visit that is considered an icebreaker. Akin to European leaders’ visits, when George Bush traveled over the Pacific Ocean in November 2005, Boeing officially shook hands with Chinese officials for 70 737s, during the then-President’s visit to Beijing, China. When Donald Trump, another ex-US President, visited the Asian nation for the first time in 2017, a deal for 300 aircraft was announced. However, according to a Chicago Tribune report, the announcement included – much like the Airbus order – already backlog-booked aircraft.
Boeing’s difficulties in China
Turning back the clocks a few decades reveals that this story has repeated itself in modern times, as Boeing struggles to gain new orders from China.
Even already-built aircraft, namely 737 MAXs, which are still grounded by the Civil Aviation Administration of China (CAAC), remain on tarmacs across the US.
“We have just had to deal with the realities we faced. For geopolitical reasons, I am guessing, we have been unable to make deliveries that we would like to make to our Chinese customers,” David Calhoun, the current CEO and President of Boeing, told CNBC on December 13, 2022, as the manufacturer and United Airlines announced a huge order for 200 aircraft. Calhoun reiterated that the company wants to deliver the airplanes but, due to the huge demand for planes across the globe, as the duopoly’s members struggle to build aircraft within the deadlines written in contracts with customers, Boeing has had “to take advantage of that market”.
“We still have airplanes on the tarmac that they can take,” Calhoun concluded.
“This year provides a dramatic opportunity to advance U.S.-China relations,” said Ron Woodard, President of Boeing Commercial Airplanes (BCA) in April 1998, a few months before his retirement. While then-China President Jiang Zemin’s visit to the US in 1997 was deemed “highly successful” by the executive, he hoped that Bill Clinton’s endeavor to China a few months later would become an opportunity “to further strengthen commerce and trade ties between our two countries”.
Still, despite the complicated nature of the two countries’ relations, Boeing managed to dominate Airbus in China and by 2002, it held a 70% market share versus the European aircraft maker’s 20%. The US-based manufacturer has worked long and hard to gain this share, teaming up with local officials to ”develop the country’s aviation infrastructure”, between 1972 and 2002.
“In the mid-’80s, for example, the Civil Aviation Institute in Tianjin and Boeing created training programs for maintenance technicians. In order to facilitate repairs, Boeing helped develop the Beijing Capital Airport Spares Center. And Boeing, the CAAC, and the Aviation Industries of China joined forces to begin intensive training of pilots, technicians, and support staff,” read Boeing Frontiers from December 2022, a magazine dedicated to current and former employees of the OEM. The manufacturer invested a further $300 million to help China “develop and expand its air transportation system”, between 1990 and 2001.
The same year, Boeing headhunted David Wang, an executive from General Electric (GE), to lead its China efforts. Based in Beijing, China, Wang became President of Boeing China, holding that role until 2011. In 2002, as well as throughout the first decade of the 21st century, the company’s executives continuously reiterated that relationships mattered most.
”There’s an old Chinese saying that [goes], ‘When you drink from the well, never forget who helped you dig the well.’ We helped the Chinese aviation industry dig the well, and our Chinese friends will continue to remember,” said Larry Dickenson, the then-Senior Vice President of Sales at BCA in December 2002.
At some point in time, the well began to dry up. By 2005, the Chicago Tribune indicated that Boeing controlled two-thirds of the market. However, Airbus began taking back control of the market even more aggressively, and the European manufacturer’s new aircraft deliveries “rocketed from 18 percent in 1993 to 67 percent last year, according to Back Aviation Solutions,” noted a Seattle Times report from 2005. Both manufacturers knew that China was the market (with an emphasis on the) and that they would have to give everything to conquer it.
Boeing, however, became complacent, according to C.C. Tien, who was quoted in the same Seattle Times article as saying that it was important for the OEM to show interest in Chinese headlines and daily developments. “Those are subtle things. You don’t see the direct payback for a long time,” said Tien, who left Boeing and at the time was consulting COMAC on its ARJ21 program.
Wang, who at that point had been working as the US planemaker’s China President for three years, noted that US and Chinese relations needed to become stronger, as Boeing and China’s “friendship and cooperation will suffer if those relationships are not strong”.
Much like with the previous chipmaking example, politics has helped Airbus to access the market. Wang indicated that the realities of traveling between China and the US for the former’s nationals “seriously affected our competitiveness”, European politicians were not as pressing on various issues within China. In 1993, while Bill Clinton was yet to meet Zemin following the events in Tiananmen Square in 1989 when a month-long protest resulted in the deaths of hundreds, if not thousands of people, the German Chancellor Helmut Kohl was already in China making deals with the local government, including an order for six Airbus A340 aircraft in November 1993, according to the Chicago Tribune. Politics has continued to play a part in how the two manufacturers play their game in China, as the duopoly is intertwined with geopolitical developments whether they like it or not.
The US government has no official stake in Boeing. Airbus, a publicly traded company, has institutional shareholders from the governments of France, Germany, and Spain, who collectively own a 25.9% stake in the company.
Drifting apart with the A350 and 787
Airbus and Boeing approached the new millennia quite differently in terms of product strategy. The European OEM moved its chips towards big hubs that would connect millions of people between major urban centers, resulting in the Airbus A380, while the US planemaker came in with a leaner approach in the form of the 787 Dreamliner.
Sure, Airbus managed to sell five A380s to China Southern Airlines, but the double-decker jet could never catch up to the Boeing 787 in terms of sales in the country or globally, for that matter. The Europeans recognized the gap in their product offering, including the lackluster performance of the A340, and introduced the A350. Their strategic partner to develop this was China. Boeing, meanwhile, turned to Japan to help them develop the 787, even if it tried its best to save face with the Chinese.
In June 2005, just as Airbus was about to launch the A350, the direct competitor to the Dreamliner, Boeing issued a press release titled “Boeing 787 Highlights $600 Million in Contracts with Chinese Suppliers”. It highlighted various parts that were built by local companies, from the composite rudder or the wing-to-body fairing panels of the 787, and 737’s forward-entry doors, to interior panels for the 777’s control cabin, among others.
“China’s aviation industry is providing outstanding technological capabilities and resources that help us meet quality, cost, and delivery imperatives in our programs – particularly on the new 787. China has been a reliable partner to Boeing for many years and we are honored that they are part of our future with the 787 airplane,” said Carolyn Corvi, BCA Vice President and General Manager of Airplane Production at the time.
Still, Japan became one of the most important industrial partners for the Dreamliner, while Airbus turned to China to help them with the A350. In 2009, Laurence Barron, who headed Airbus China, said that if local suppliers were willing to offer competitive prices, the manufacturer would be willing to allocate more than 5% of the airframe work to China. At the time, the European OEM already signed deals with local companies to produce rudders and maintenance doors and was looking to negotiate for more, according to Barron’s statement at the time.
There is perhaps no better indication of the warm relationship Airbus has enjoyed with China than the fact that the Tianjin FAL, which primarily dealt with assembling the A320 family aircraft, has also become a Completion & Delivery Centre (C&DC) for the A330 and A350. The lines to finalize the assembly of the A330 opened in 2017, while the center delivered its first A350 in July 2021.
The C&DC’s employees install cabins, paint aircraft, conduct production flight tests, and perform customer flight acceptance flights that lead to a jet’s delivery to the customer. Boeing, meanwhile, has had a facility akin to Airbus’ C&DC – also called a Completion and Delivery Center – located in Zhoushan, China. At the center, 737 MAX interiors are installed, as well as liveries are painted prior to deliveries to Chinese carriers. As mentioned previously, the CAAC has still not ungrounded the 737 MAX, leaving the center without a purpose for now. While the Chinese aviation authority held a meeting with Boeing in September 2022, “to carry out a comprehensive evaluation of the aircraft type-based training standards for the improved 737 planes”, the CAAC said in its announcement, there have not been any recent developments regarding the plane’s ungrounding.
Germany’s Scholz visited Xi in Beijing in November 2022, noting in his op-ed for Politico that “China remains an important business and trading partner for Germany and Europe,”, Biden met Xi in Indonesia prior to the G20s get-together the same month.
“China and the United States need to have a sense of responsibility for history, for the world, and for the people, explore the right way to get along with each other in the new era, put the relationship on the right course, and bring it back to the track of healthy and stable growth to the benefit of the two countries and the world as a whole,” read a statement by the Ministry of Foreign Affairs of China released shortly after the meeting ended.
In July 2022, Airbus estimated that it had a 53% market share in China.
