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Boeing needs China to approve the 737 Max. But that won't end its
epic sales drought
By Laura He, CNN Business
Updated 1357 GMT (2157 HKT) November 27, 2020

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Boeing's 737 Max Millions travel for Emotional flight Delta CEO: Rapid Airl
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surge furloughed

Hong Kong (CNN Business) — Boeing is finally close to getting its 737 Max back into the air again in
the United States. But the company still faces challenges in the critical aviation market of China,
where its business woes go way beyond the troubled aircraft.

The Civil Aviation Administration of China (CAAC) has yet to say whether it will allow the 737 Max
to fly in the country after the US Federal Aviation Administration gave the green light for the plane
to carry passengers earlier this week. While the US government was an important hurdle for
Boeing to clear, it will need approval from other aviation regulators before airlines can fly the
plane between international destinations.

The European Union Aviation Safety Agency, which

oversees flights in Europe, has said it expects to take
action in late December or early 2021.

But China's sign-o is critical. The country was the first

Related Article: Boeing's 737 Max gets
approval to fly passengers again
design are "safe and reliable."
to ground the 737 Max last year after two of the jets
crashed, claiming hundreds of lives. The CAAC said last
month that it has its own criteria that Boeing (BA)
needs to meet before China will be satisfied with the
plane again, including assurances that changes to its

"As long as they meet the requirements, we are happy to see them resuming flights," Feng
Zhenglin, director of CAAC, said last month at a press conference in Beijing. "But if not, we have
to maintain strict examination to ensure safety."

CAAC did not respond to a request from CNN Business for comment.

A vital market
China's approval isn't just about allowing the 737 Max to fly in Chinese airspace again. Boeing's
business in China has been severely damaged by years of fighting between Washington and
Beijing over trade, technology and intellectual property rights, and getting back on track will be a
huge challenge.

Before the trade war, China was a big market for Boeing. In 2015 and 2016, China sales
accounted for 13% and 11% of the company's total revenue, respectively, according to its annual
reports. In 2015, China was Boeing's largest export market, and it was the third largest in 2016.

But the company hasn't sold any passenger planes to China in the past two years, Sherry
Carbary, president of Boeing China, said late last year, according to the state-owned Shanghai
Observer. Two freighters were ordered by China Cargo in May.

The company's China problems are "well out of Boeing's control," said Richard Aboulafia, vice
president of analysis at Teal Group Corporation, an aerospace space consulting firm.

"In China, Boeing is prisoner to forces beyond mere aviation market dynamics," he added. "It
would be impossible for Boeing to not be wrapped up in this giant mess, involving trade barriers,
[intellectual property] disputes, and tari s."

US-China tensions have manifested in other ways, too. Beijing said last month that it will impose
sanctions on American companies — including Lockheed Martin (LMT) and Boeing — that have
been involved in selling arms to Taiwan.

Boeing is upbeat about the Chinese market, though. Last week, the company issued a positive
outlook, saying that it expected industry-wide sales of new airplanes to total 8,600 in China over
the next 20 years. That estimate, valued at $1.4 trillion, is even higher than where it stood before
the Covid-19 pandemic — notably, China's economic recovery this year has outpaced the rest of
the world.

"Boeing remains compelled to grow its footprint in the China civil aviation market for economic
and strategic reasons, alone," said Alex Capri, research fellow at Hinrich Foundation and visiting
senior fellow at National University of Singapore. "Failure to do this will cost the company
[research and development] revenue and future opportunities to collaborate with strategic
partners."

Domestic competition
Boeing may face stronger competition as it seeks to get back on track in China.

Its rivalry with Airbus has deepened, especially after Boeing was hit with its 737 crisis. Last year,
weeks after China grounded Boeing 737 Max, Airbus announced a deal to sell 300 passenger
jets to Chinese airlines.

The upstart Commercial Aircraft Corporation of China, or Comac, is also developing its own
aircraft.

Comac's jets might be able to satisfy some demand in

China in the next five-to-eight years, Aboulafia said, but
analysts agree the planes don't have the makings of a
global competitor.

"As for [Boeing] losing market share to Comac, there's

Related Article: Comac C919: China
takes on Airbus and Boeing
no certainty when this might happen," Capri said,
adding that China has been trying unsuccessfully to
build cutting edge jet engines and other tech for
decades.

Capri added that Boeing has also been able to build a solid strategy in China by isolating its
businesses in the country and keeping some of its more valuable intellectual property and other
operations elsewhere. He pointed to a 737 plant in the Chinese province of Zhejiang, where the
company accomplishes low-value tasks like installing interiors.

"Competing in the China market is always going to be a Faustian bargain," Capri said. "But civil
aircraft is no di erent than the situation for the automotive industry or semiconductors," he said.

Correction: An earlier version of this story incorrectly attributed a quote to the president of
Boeing China.

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