U.S. LIKELY TO PLAY UP CHINA’S ‘WEAKNESS’ ON BOEING ORDERS

Beijing far short of promises to boost its purchases of American goods by US$200b in 2020 and 2021

As the administration of US President Joe Biden edges closer to discussions with Beijing over the progress of the phase one trade deal, China’s failure to buy commercial aircraft from Boeing is likely to be one of the “weaknesses” identified by US Trade Representative Katherine Tai.

Tai said the administration aimed to hold Beijing accountable to the two-year deal that was signed in January last year, with China seen to be running far behind in its promises to boost purchases of US goods by US$200 billion during 2020 and 2021.

“If you’re looking at where the weaknesses might be, in terms of phase one, you should expect that we are talking through it and exploring all of it,” Tai told reporters in Washington on Wednesday when asked if she was pushing for China to take steps to allow for purchases of Boeing commercial aircraft, which is listed as a purchase category in the agreement.

Boeing’s biggest offering to China, the 737 MAX, has been grounded since 2019 after two fatal crashes. Its business has also been caught up in the trade war between the United States and China that started in 2018.

Analysts believe Boeing’s fate in China hinges on better ties between Beijing and Washington, meaning unless there is significant improvement, it is unlikely to receive approval from the Civil Aviation Administration of China.

“There’s no doubt the MAX has been fully fixed and is one of the safest aircraft to fly today. But in the aviation business, other factors are at play, especially the current political schism between the two countries. It weakens the secondary market [and residual value] of the MAX if China indefinitely delays its return,” said Shukor Yusof, founder of aviation consultancy Endau Analytics.

“My sense is the Chinese won’t be returning the MAX to service this year. Or perhaps not even in the first quarter of 2022. Maybe never at all if relations continue to sour.”

Data from Ascend by Cirium, the consultancy arm of global aviation data company Cirium, showed 113 aircraft in Boeing’s inventory of 335, defined as aircraft that have flown but not yet been delivered, were scheduled for delivery to customers in China.

“China is critically important to Boeing and the MAX programme,” said Rob Morris, global head of consultancy at Ascend by Cirium. At face value, he added, the MAX’s market share did not appear to be suffering as a consequence of not being able to deliver in the Chinese market and despite strong competition with Airbus.

US Commerce Secretary Gina Raimondo said in September the Chinese government was preventing its domestic airlines from buying “tens of billions of dollars” of US-manufactured planes.

China’s aviation regulator, the CAAC, did not respond to questions by fax on the status of Boeing’s 737 MAX. It previously said it would not lift the grounding order until design modifications were recertified, pilots had been sufficiently trained and clear findings into the crashes in Ethiopia and Indonesia released.

Boeing tested the 737 MAX in China in August and chief executive Dave Calhoun said last month the company would “continue to work towards approval by the end of the year, with a resumption of deliveries to follow in the first quarter of next year”.

However, he also acknowledged the delivery time would depend on a number of factors, including regulatory approvals.

“This delivery timing and the production rate ramp profile remains dynamic, given the market environment, customer discussions, regulatory approvals and supply chain stability,” he said.

The US and China signed their deal in January 2020, and the terms outlined in the agreement took effect one month later, with China committing to buying a further US$200 billion worth of goods and services over two years compared to 2017 levels.

But a report by the Peterson Institute for International Economics last month said China’s purchases of US goods from January to September this year had reached only 68 per cent of the year-to-date target based on Chinese import data, and only 61 per cent based on US export data.