Author/ Author of "Finance and Economics" Weekly Zeng Guang Wei Yining
Editor/ Dong Yuqing
Before the 2019 no-fly order, Boeing data showed that the Chinese market accounted for about 25% of Boeing's overall sales. Now, under the influence of the China Eastern Airlines disaster, not only the 737-MAX's resumption plan in the Chinese market has no prospects, but also the 737-800 series models involved in the incident have also been overshadowed.
With the fall of the China Eastern Airlines Boeing 737 airliner on March 21, Boeing once again lost the opportunity to regain the trust of the Chinese market. On the evening of March 22, the National Emergency Response Command held a press conference in Wuzhou, Guangxi Province, to release the progress of the investigation into the crash of the China Eastern Airlines passenger plane. As of the early morning of the 22nd, the search and rescue work has not found surviving personnel.
While hoping for a miracle, people seem to no longer have illusions about Boeing.
Since entering China in 1972, Boeing has been in the Chinese market for 50 years, and China is Boeing's largest market in the world. Boeing wrote on its Official China website: "Today, more than 50% of all civilian jets operating in China are Boeing aircraft. ”
But after 2019, Boeing has bid farewell to its sweet moments in the Chinese market.
On October 29, 2018, a Boeing 737-MAX airliner of the Indonesian Lion Air Group crashed, leaving 189 people on board unsaved. On March 10 of the following year, a 737-MAX aircraft of Ethiopian Airlines was re-crashed, killing 157 people on board.
In six consecutive months, two consecutive air crashes killed 346 passengers and crew, leaving Boeing in a whirlpool of public opinion. On March 21, 2019, China banned the Boeing 737-MAX aircraft worldwide because "the accident investigation has not yet ruled out aircraft design issues."
Following this action, Canada, Indonesia, South Korea, the United States and other countries quickly followed, the aircraft has been banned by most countries in the world, not only a large number of active 737-MAX models are suspended, a large number of orders for delivery have also stagnated.
But three years later, time has diluted people's memories, and now most countries have gradually lifted the ban on the Boeing 737-MAX.
As of August 2021, nearly 175 countries and regions around the world have allowed the 737-MAX to be lifted and allowed to resume flights, and after entering the second half of the year, South Korea, Indonesia and Ethiopia, the party involved in the Ethiopian Airlines disaster, have also lifted the ban and resumed the commercial operation plan of the Boeing 737-MAX.
In September 2021, Boeing announced that the 737-MAX model had passed the test flight in the Chinese market, and in December, the Civil Aviation Administration of China issued an airworthiness order for the Boeing 737-MAX, which was expected to resume commercial operation in early 2022, but has not yet completed the lifting of the ban.
"Losing" China again
China is Boeing's most important market in the world. According to Boeing CEO Calhoun revealed on a conference call in April 2021, China is Boeing's largest trading partner in the world, and the number of orders from China will directly affect Boeing's future production.
Calhoun has made his attitude clear in public more than once, saying that Boeing "cannot afford to be kicked out of the Chinese market" and that "China will account for 25% of the growth of the global aviation industry in the next decade", and that Airbus will enter the market as soon as Boeing withdraws from the Chinese market.
After the 2019 Ethiopian Airlines disaster, Airbus has become the world's largest manufacturer of civil airliners for three consecutive years, stealing a large number of Boeing's customers. In 2021, Airbus delivered 611 commercial aircraft to 88 customers, while Boeing delivered 340 commercial aircraft to about 50 companies.
Especially in the Chinese market, in April 2019 alone, Airbus won a large order for 300 passenger aircraft in the Chinese market. In 2021, Airbus has a market share of 53% in China, surpassing Boeing.
In September 2021, Boeing further raised its forecast for China's aviation market in a report, expecting China to need 8,700 aircraft over the next 20 years. Boeing estimates that the economic value of the planes is as high as $1.47 trillion (about 9.35 trillion yuan).
Boeing, one of the world's two largest civil aircraft manufacturers, could have benefited greatly from this huge market, but now that forecast adds to the variables. After the air crash on March 21, China Eastern Airlines has announced the grounding of all of its 737-800 series airliners.
After the 2019 Ethiopian Airlines disaster, Boeing paid its due price: not only did the CEO leave, the company fell into six consecutive quarters of losses and falling stock prices, but Boeing directly paid $2.5 billion in fines and damages, including $243.6 million in fines, $1.77 billion in compensation to customers, and $500 million in damages to victims. According to CNN estimates, the 737-MAX grounding caused boeing losses of more than $20 billion.
Due to Boeing's huge market share in China, the grounding in 2019 alone has reduced Boeing's revenue in China by more than $13 billion, leaving only $680 million.
As the most important military giant in the United States, Boeing's survival is related to the foundation of the entire military industry and manufacturing industry in the United States.
To save Boeing, the Federal Aviation Administration (FAA) began pushing the 737-MAX back to flight in 2020. In November 2020, the FAA officially lifted the grounding instruction for the Boeing 737-MAX, gradually resumed operations in the United States, and allowed Boeing to begin delivering aircraft.
Led by the FAA, the Boeing 737-MAX will be thawed on a global scale starting in 2021. As of the end of July 2021, according to Boeing statistics, 175 nationally certified 737-MAX models have resumed flights, and 21 airlines have resumed operations of the 737-MAX fleet.
Photo/Visual China
But as Boeing's largest market in the world, China has not lifted the ban on the 737-MAX. The data shows that from 2017 to 2021, Boeing's orders directly from China have been declining, receiving only 15 airliner orders from China, accounting for 1% of its new orders.
Boeing CEO Calhoun mentioned at an investor presentation last year that the Chinese market, the 737-MAX grounding and the new crown epidemic are the "three mountains" that the company needs to overcome the most.
In order to regain the trust of the Chinese market, Boeing has made multiple efforts. According to Bloomberg' previous report, in July 2021, Boeing sent 35 pilots and technicians to China to support the resumption of the 737-MAX, and the FAA also sent officials to participate in the relevant test flights. On August 11, according to media reports, a Boeing 737-MAX7 aircraft at Zhoushan Airport in Zhejiang Province completed a nearly two-hour airspace and approach verification test flight.
On December 2, 2021, the Civil Aviation Administration of China issued an airworthiness order for the Boeing 737-MAX, clarifying the correct work that domestic airlines need to carry out on the 737-MAX model, and is expected to resume commercial operation of the 737-MAX fleet in early 2022 and restart the introduction plan of new aircraft.
On January 9, 2022, a Hainan Airlines Boeing 737-MAX8 aircraft completed an airborne flight from Taiyuan Wusu Airport to Haikou Meilan Airport. However, in the context of the downturn in the entire aviation industry, the unpacking and storage of aircraft, as well as the training of pilots, need to pay a certain cost, and the resumption of 737-MAX is still unknown.
The aviation industry is already sluggish, and with the accident of China Eastern Airlines, Boeing's return plan that has been preparing for a long time in China is probably frustrated in the short term.
Boeing's Chinese Dream
Boeing's earliest roots with China, before it entered the Chinese market. In 1916, William Boeing and his partners founded the Aircraft Company, and at the outbreak of World War I, Mr. Boeing's partners were called to the war by the Navy, so he recommended to Boeing his brother-in-law, Wang Suo, a graduate of the Chinese of the Massachusetts Institute of Technology.
Mr. Wang was Boeing's first engineer and head of Boeing's independently designed Type C aircraft, which was trusted by the U.S. Navy, and the military ordered 50 Type C aircraft, earning Boeing its first pot of gold.
Although Wang Zhu decided to return to China and devote himself to the aviation industry in his homeland after only one year at Boeing, Boeing will always remember him. In 2005, the Feihang Museum at Boeing's headquarters set up a solo exhibition area for Wang And gave him a "First, and the best" evaluation in a commemorative message.
In 1972, with the visit of US President Richard Nixon to China, China signed its first Boeing order, ordering 10 boeing 707 aircraft that were the most advanced at the time. In 1973, China's civil aviation successively opened routes such as Paris, London, and Frankfurt, and the Boeing 707 became the first aircraft to carry Chinese "going out". Throughout the 1980s, China ordered more than 100 aircraft from Boeing.
After Boeing entered China, with the gradual advancement of reform and opening up, Boeing's old rival Airbus also entered the Chinese market in 1985. In the 1990s, Airbus became a strong competitor to Boeing, both in China and around the world.
The dispute between Boeing and Airbus involves fierce competition between the United States and Europe in the aviation industry, with both sides believing that the other has received government subsidies for research and development. John Newhouse, a prominent biographer who served as an assistant to the director of the U.S. Arms Control Administration, once called the commercial war between Boeing and Airbus "the highest war." He said that although the civil airliner is no longer the highest flying machine of human beings, the commercial competition in this field can be called one of the most complex and high-end commercial battles in human history.
At that time, as a rapidly developing emerging economy, the consumption level of Chinese residents continued to increase, the demand for domestic and international travel increased, and the aviation market had great potential. In 2000, according to industry-wide forecasts, China would need 1,790 aircraft over the next 20 years, with a total value of more than $137 billion. As a result, the Chinese market has become the forefront of the competition between Boeing and Airbus.
Compared with Airbus, the Chinese market has actually favored Boeing more. In 2010, Airbus received orders for 574 airliners, up from Boeing's 530 and surpassing Boeing for the first time in the global market. But in the Chinese market, Boeing still has a market share of more than 50% in China in 2011, and Airbus has a market share of 46% in China.
In the official procurement practice of China's commercial aircraft, the official has maintained the relative balance between Boeing and Airbus, and neither of them can achieve absolute dominance in China's market share. However, Airbus is confident of increasing its market share in the Chinese market by more than 50%. Airbus' plan is to achieve a 50% market share in the Chinese market in 2015, and they got their wish. Since then, Airbus' market share in China has continued to grow.
Boeing, on the other hand, was accompanied by multiple air crashes, and its reputation fell to the bottom. According to a survey released by the British Barclays Investment Bank in May 2019, many passengers said that even if the Boeing 737-MAX no-fly order was lifted, they would refuse to fly on the aircraft for at least a year, so Barclays Bank downgraded its rating of Boeing shares, triggering a market sell-off, and Boeing shares fell 4% on the day.
Perhaps the public memory will soon fade, and passengers will still choose the more fuel-efficient and less expensive Boeing 737-MAX, but regulators and airlines will have to be cautious. Analysts at Barclays Investment Bank believe that between 2019 and 2020, airlines may reduce orders for 200 Boeing aircraft compared to what was expected before the two crashes.
According to Boeing's 2021 year-end report, it delivered a total of 340 aircraft throughout the year, compared with 806 in 2018. The crash, combined with the Great Depression in the aviation industry caused by the new crown epidemic, has caused Boeing to gradually fall off the altar and be overtaken by Airbus. In 2021, Airbus sold 771 aircraft with a net order of 507, almost double that of 2020.
No longer the "only option"
For the past three years, Boeing has been trying to break free from the losing quagmire of the 737MAX grounding.
In the second quarter of 2021, with the gradual lifting of the ban on 737MAX by major countries around the world, Boeing ended six consecutive quarters of losses, achieving revenue of $17 billion, up 44% year-on-year, and net profit of $567 million, a significant reversal of $2.964 billion year-on-year loss.
In the fourth quarter of 2021, although Boeing was still in a state of loss due to production problems with the 787 Dreamliner, it finally ushered in its first positive cash flow since 2019. Boeing's operating cash flow was $716 million in the fourth quarter of last year, and net cash flow was still $494 million, excluding assets such as real estate, plants and equipment.
But it's still a long way from Boeing overtaking Airbus to become the world's number one, with Boeing's full-year net loss of $4.202 billion (about 26.7 billion yuan) for 2021 and Airbus achieving a net profit of 4.213 billion euros (about 29.5 billion yuan).
The Chinese market is the number one market that Boeing must win when it returns to the top. In 2020, China became the world's largest domestic aviation market for the first time. In the first half of 2021, China's civil aviation industry transported 245 million passengers, recovering to 76.2% before the epidemic. Boeing, meanwhile, is struggling in the Chinese market.
In addition to the threat of old rival Airbus, domestic large aircraft are also accelerating their rise. In 2007, China passed the "Demonstration Report on large aircraft schemes", and in May of the following year, COMAC was inaugurated in Shanghai. In 2009, the 190-seat domestic large aircraft project C919 was officially established, and the test flight was successful in 2017.
However, C919 still needs global supply in terms of engines, avionics systems, etc., and like the world's mainstream passenger aircraft manufacturers, it adopts non-domestic advanced products and technologies, and has not yet achieved the full localization of key components. Therefore, after COMAC was included in the sanctions list, C919 was also affected by certain sanctions, delaying the delivery time. In September 2021, it was officially announced that the seventh C919 would begin final assembly, but according to industry insiders, in fact, except for the engine, it has been assembled.
The latest news is that the domestic C919 is currently in the stage of airworthiness forensics, and it is expected to be delivered in 2022, and the number of orders has exceeded 1,000, resulting in a market size of nearly 600 billion yuan. After the C919 obtains the airworthiness certificate, it is expected to gradually enter the market in the future, start batch delivery, and put into commercial operation. If the C919 can be successfully delivered and operated, Boeing will face new challengers in the Chinese market.
For Boeing, the 737MAX's resumption plan in China is still in the verification stage, has not yet passed the verification of the Civil Aviation Administration, and now the public's confidence in Boeing airliners has been hit hard again, and the resumption plan may also be greatly affected.
After being grounded in 2019, the Civil Aviation Administration of China put forward three principles for the "resumption" of the Boeing 737MAX: the design modification of the aircraft must be approved for airworthiness; astronauts must be fully and effectively trained again; and the two accidents must have clear investigation conclusions and effective improvement measures.
In December 2021, the Civil Aviation Administration of China issued an airworthiness certificate for the 737MAX, which is only the first of the conditions for resuming flights, and after the Disaster of China Eastern Airlines, the 737MAX may need to complete more than these three principles to achieve a real resumption.
In addition, the crashed model 737-800 may also be affected. The model is the best-selling model in the Boeing 737NG family, with more than 5,000 units delivered. In the Chinese market, this is also Boeing's highest number of models in China, the data shows that as of January 2022, Boeing 737-800 models in China reached 1192 aircraft, accounting for 30.78% of all models.
After the crash of Flight MU5735 on March 21, China Eastern Airlines urgently controlled all 737-800 models on the ground and required all passenger aircraft to suspend flights from the 22nd. It is unclear whether the crash was related to mechanical failures and whether other airlines would follow suit in the future.
However, for the Chinese market, in the case that Airbus began to further exert efforts on the Chinese market and the domestic C919 was self-produced, Boeing has long been not the only choice.
This article is originally produced by AI Finance and Economics, an account of Caijing Tianxia Weekly, without permission, please do not reprint it on any channel or platform. Violators will be prosecuted.