Tuesday, March 22, 2022

China Eastern Plane Crash Complicates Boeing’s China Relationship

Crash probe could take months, comes as Boeing works to resume MAX deliveries to China

The Wall Street Journal 
By Benjamin Katz and Trefor Moss
March 22, 2022 1:08 pm ET

The crash of a China Eastern Airlines Corp. 737-800 comes at a precarious time for Boeing Co. in China, with the plane maker working to revive its standing in the key aviation market after years navigating the fallout of the MAX crisis and a China-U. S. trade war.

On Monday, a Boeing aircraft carrying 132 people suddenly fell from the sky, and rescuers on scene have yet to find any survivors among the plane’s debris. China Eastern Airlines grounded its entire fleet of 737-800 aircraft in response affecting some 224 in-service aircraft across the airline group, according to aviation consulting firm Cirium.

For Boeing, the crash comes as it was closing in on the return to service in China of the 737 MAX—a different model to the aircraft in Monday’s crash. The aircraft’s fixes had been approved by China’s regulator with Boeing saying in January it was prepared to resume deliveries of the aircraft as early as the first quarter of this year.

Boeing shares rose 2.6% Tuesday to $190.66 after falling 3.6% Monday following news of the crash.

China has been an increasingly important market for Boeing as the country rapidly built up its aviation industry over the past three decades. The company has delivered 1,736 jets to China, according to Boeing’s own data, with 143 more on order. Boeing believes there is far more to come. It forecasts that China will buy 8,700 new jetliners—from all suppliers, but chiefly from Boeing and Airbus SE—over the next two decades, accounting for nearly a fifth of global demand.

The key to realizing that potential, however, will likely be Boeing’s ability to restore Chinese confidence in its aircraft.

Boeing canceled a senior executive meeting due to take place this week in Miami in response to the crash, according to a person familiar with the matter, while representatives from the company will serve as technical advisers to the investigation being led by the Civil Aviation Administration of China, its safety regulator.

It can typically take months or more for investigators to determine the cause of an air crash. The reasons for the crash will likely play a large role in determining the length of China Eastern’s 737-800 grounding and any delay in the MAX’s return to flying, analysts said.

Boeing Chief Executive David Calhoun last year said the company needed new orders from China’s airlines, the biggest buyer of aircraft in the world, to compete as air travel recovers quickly from the pandemic. The U.S. plane maker hasn’t secured a new jetliner order from China in over four years.

Mr. Calhoun, in a message to staff on Monday evening, said the company is closely communicating with China Eastern and regulatory authorities following the crash. “Trust that we will be doing everything we can to support our customer and the accident investigation during this difficult time,” he said.

China Eastern’s rapid reaction to Monday’s disaster calls back China’s response in the wake of the Ethiopian Airlines tragedy in March 2019, which led to the world-wide grounding of the 737 MAX, a later generation model to the 737-800 involved in Monday’s crash. China’s aviation authority was the first to ground the MAX, with Western safety officials initially expressing concern that it had acted prematurely and without sufficient evidence before ultimately following suit.

Boeing’s business in China has been buffeted over the past few years by the souring of U.S.-China relations, the grounding of the 737 MAX and the coronavirus pandemic, which continues to depress Chinese travel demand and with it demand for new jetliners.

“We would now expect further delays to Chinese reinstatement of the 737 MAX while this accident is investigated, at least until a likely cause is identified,” Robert Spingarn, an equity analyst with Melius Research said in a note to clients. He added that investors are watching to see if the cause is attributed to an aircraft fault, pilot error, a maintenance issue, or to an external event—such as weather.

A rupture with Boeing would have severe costs for China, too, given its reliance on the company’s aircraft.

Boeing’s importance was illustrated by Beijing’s response to President Trump’s tariffs. As the U.S.’s biggest exporter, Boeing was an obvious target for Chinese reprisals. Instead, Beijing in 2018 slapped a 5% levy on small U.S.-built aircraft, while leaving the larger jets which Boeing produces unscathed—a sign, analysts said, that China had decided against disrupting the supply of Boeing airplanes to protect the growth of its aviation sector.

China is also a major customer for Boeing’s rival Airbus, but Airbus’s huge order backlog makes it hard for Beijing to shift orders to the European company and expect an uptick in Airbus deliveries.

The state-run Commercial Aircraft Corp. of China, or Comac, has been developing a 737 rival, which, after years of delays, will be ready to enter service in 2022, the company has said. China Eastern will be the first customer for the new C919 jet.

In China’s centrally planned system, Beijing can force China Eastern and other state-owned airlines to buy the C919, potentially depriving Boeing of some new orders. Yet while some analysts believe that Comac will eventually become a serious rival for Airbus and Boeing, most downplay the homegrown plane’s chances of challenging the established duo any time soon.

Boeing opened its first production facility outside the U.S. near Shanghai in 2018. However, the so-called finishing center only fits and paints 737 jets built at Boeing’s factories in Renton, Wash., and—unlike Airbus, which manufactures jets in Tianjin—the company has said it has no plans to make aircraft in China or anywhere else outside the U.S.

China Eastern Airlines, Boeing 737-800, B-1791 performing flight MU-5735

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