Boeing's Bullish China Outlook Faces Trump's Trade War Headwind
(Bloomberg) -- Boeing Co. painted an optimistic forecast for China, an aviation market soon poised to become the world’s biggest. The planemaker also needs to overcome a tit-for-tat trade war that President Donald Trump is ratcheting up.
The country will need 7,690 new planes worth $1.2 trillion over the next two decades, the Chicago-based planemaker said in Beijing Tuesday. That’s a 6 percent boost from its projections a year ago, as China’s middle class continues to grow and seek out air travel, according to Randy Tinseth, Boeing’s vice president of marketing.
“The future of commercial aviation in China is very exciting,” he said in a statement.
But that outlook could be threatened if Trump makes good on a proposal to slap tariffs on another $267 billion of Chinese exports, on top of the $200 billion of items his administration is putting final touches on and the $50 billion he’s already targeted. That would cover basically everything China exports and could trigger retaliation in kind from Beijing, a move that could ensnare Boeing’s passenger jets -- which have been left off tariff hit lists thus far.
The $12.2 trillion Asian economy, the world’s biggest source of outbound travelers, is a crucial market for both Boeing and Airbus SE as mainland carriers expand capacity and add new destinations across the world. The nation accounted for about 13 percent of Boeing’s revenue last year, according to data compiled by Bloomberg.
In the battle for dominance in the market, which the International Air Transport Association says could surpass the U.S. to become No. 1 in about four years, the American company has managed to maintain a lead over its European rival.
While China has said it would be forced to retaliate against all of the U.S. tariff measures, it isn’t clear if President Xi Jinping would include passenger jets on his list of American targets. The U.S. imported $505 billion of Chinese products in 2017, Census Bureau figures show.
In a warning shot back in April, China had proposed an extra 25 percent tariff on an older generation of Boeing’s 737 models that was nearing the end of its production run, but has steered clear since.
At the Farnborough air show in July, both Boeing Chief Executive Officer Dennis Muilenburg and Airbus’s chief of commercial aircraft Guillaume Faury said the aerospace business thrives on free trade, and no one wins such a war.
In its forecast on Tuesday, Boeing said China would need 5,730 single-aisle planes, accounting for 75 percent of total new deliveries during the next two decades. The country would need 1,620 widebody aircraft, or triple the country’s current fleet size, it said. At present, China has 15 percent of the world’s commercial airplane fleet, and that is likely to expand to 18 percent by 2037, Boeing said.
In August, Boeing raised its global forecast by 4 percent to 42,700 planes valued at over $6 trillion. The predictions are based on a blend of economic and airline-user data and don’t include the potential ripple effects from geopolitical or economic turmoil.
Policy makers in China could still deal a blow to Boeing by favoring Airbus for future orders. Premier Li Keqiang said in June that his government is willing to step up cooperation with Airbus.
But for now, Boeing seems to be insulated from the tensions with China. It delivered 202 aircraft to Chinese airlines in 2017, compared with 176 by Airbus.
China itself is likely to join the race for commercial planes in the next couple of decades. State-owned Commercial Aircraft Corp. of China, known locally as Comac, has been conducting test flights for its C919 narrowbody jet since May last year. The company says it has racked up more than 800 orders from Chinese carriers and lessors.
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