Boeing Co. is looking for a glimmer of hope when US President Joe Biden meets with his Chinese counterpart Xi Jinping on Monday.
It’s been 3 1/2 years since a mainland Chinese airline took delivery of a Boeing 737 Max aircraft -- a wait brought on by a pair of fatal crashes, a global pandemic and simmering tensions between the world’s two most powerful countries. China used to take a quarter of the cash-cow jets that the US planemaker built each year, and the beleaguered aerospace company could use a lift.
European rival Airbus SE has a lock on China’s lucrative narrow-body jet market for now -- and will until Biden can persuade Xi to let Boeing back in. The Arlington, Virginia-based company is supplying him with a compelling case. Boeing projects Chinese airlines will require 8,485 new passenger and freighter planes valued at $1.5 trillion over the next two decades, accounting for more than a fifth of global deliveries. Airbus and China’s homegrown manufacturer Comac are unlikely to meet that demand alone.
If Xi hints Monday at a willingness to work with Biden on aerospace, Boeing would view it as a win, since aircraft have loomed large in relations between the two countries for decades. Even a pledge to continue talks or consider a state visit would be promising sign.
The question is whether Biden is ready to press Xi on the matter when they meet in Bali, Indonesia. His administration is focused on the shortfall on Beijing’s side in delivering on a 2020 trade deal to buy tens of billions of dollars’ worth of Boeing planes. But instead of asking for specific concessions for the aircraft maker, the White House views the situation in the broader context of Chinese economic practices that disadvantage many US companies beyond Boeing, a person familiar with the administration’s thinking said.
“Boeing is a very important stakeholder. But Boeing on its own doesn’t determine our trade policy,” US Trade Representative Katherine Tai said in an Oct. 28 interview. “At the end of the day, my office is the Office of the US Trade Representative. And we do have to carry the focus on the entire United States.”
In private, senior Boeing officials and other aerospace executives have voiced frustrations over the lack of progress on trade. Biden’s foreign policy approach in general hasn’t been as transactional as that of his predecessor, Donald Trump. The current president’s priorities in relations with China include security concerns heightened by the war in Ukraine, tensions over Taiwan and steps to disentangle the world’s two largest economies.
“The priority is going to be stabilizing the political and military standoff, not commercial relations,” Richard Aboulafia, managing director with AeroDynamic Advisory, said of the Biden-Xi meeting.
That’s why any sign of a thaw this week would be a pleasant surprise for Boeing. The company isn’t counting on Chinese orders in its plan to restore cash flow, reduce its $57 billion in debt and emerge from crises that wiped out $150 billion in market value in the past three years. But they sure wouldn’t hurt.
“Aviation is a big part of the economic relationship between our two countries, and it has been for the last 50 years,” John Bruns, Boeing’s vice president of commercial sales and marketing for India and Southeast Asia, said in an interview last week. “We’re happy to see the dialogue happening.”
Nixon in China
Jetliners have been a barometer of US-China diplomacy since Richard Nixon first flew to Beijing on a Boeing 707 a half-century ago. Shock-and-awe aircraft orders have been a staple of head-of-state visits over the decades, underscoring China’s growing clout. In fact, Xi unveiled a splashy 300-jet deal worth $38 billion with his first official tour of the US in 2015.
American presidents get to use such orders as political wins, helping shore up the US trade deficit and create work for hundreds of thousands of people, between Boeing and its suppliers.
China is one of the last nations that hasn’t returned the workhorse 737 Max to commercial service following two fatal crashes in 2018 and 2019. That milestone has slipped repeatedly amid Covid flare-ups and lockdowns. It’s a big reason why Boeing twice pared its annual target for 737 deliveries this year to 375 planes, after initially aiming to hand over nearly 500 aircraft.
The planemaker has taken steps to reduce its exposure to China in recent months, including shopping undelivered jets earmarked for the country’s carriers. Boeing Chief Executive Officer Dave Calhoun has mapped out plans to churn out $10 billion in cash annually by mid-decade even if the US planemaker remains locked out of the People’s Republic.
Analysts fret that Boeing’s financial comeback, and its hopes of an even-split global duopoly with Airbus, could sputter if it doesn’t restore 737 deliveries to China.
“The whole lack of progress, deterioration with China has been the biggest surprise of aerospace in 2022,” RBC analyst Ken Herbert said of Boeing. “We’re entering a new reality with China. And Boeing unfortunately is caught up a bit in the crosshairs.”
China signaled that it’s favoring Airbus, at least for now, by unveiling a 292-jet order in July, breaking from its practice of carefully balancing orders between the US and European planemakers. Its airlines will eventually need new Boeing jets, but can make do without them while quarantines and continued outbreaks depress demand. Douglas Harned, an analyst with Bernstein, doesn’t expect domestic flying to fully reopen until the second half of 2023, followed by international travel in 2024.
Boeing could gain from Beijing’s initial steps toward relaxing some of its Covid measures, which should encourage more travel from neighboring countries in southeast Asia -- and eventually bring more plane sales, said George Ferguson, analyst with Bloomberg Intelligence.
“China doesn’t need to open to Boeing right away,” he said. “We just need more flying in the region for Boeing to see a benefit.”
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