U.S. to Curb Chinese Airlines’ Access, Stoking Trade Tension
The U.S. government on Wednesday warned China that it will suspend passenger airline flights from that nation.
(Bloomberg) -- The Trump administration is suspending passenger flights to the U.S. by Chinese airlines, saying it was retaliating after Beijing barred American carriers from re-entering China amid escalating tensions between the two nations.
The order issued Wednesday takes effect June 16, although President Donald Trump could act sooner if he chooses, the Department of Transportation said in a statement.
The move ratchets up tensions between the U.S. and China over trade, the coronavirus pandemic and the treatment of Hong Kong. China recently paused some agriculture imports after Trump threatened to eliminate the policy exemptions that allow America to treat Hong Kong differently than the mainland. A phase one trade deal between the nations is in jeopardy, and along with it billions of dollars in Boeing Co. aircraft sales.
Beijing has prevented U.S. carriers from restarting service to China while four of its airlines have maintained flights to and from American airports this year as Covid-19 erupted, according to the Transportation Department. U.S. airlines had asked to resume service as early as June 1.
Related: U.S. Airline Stocks Rally After Halt to Chinese Flight Access
“The Chinese government’s failure to approve their requests is a violation of our Air Transport Agreement,” the Transportation Department said in an emailed statement.
The order stops short of an outright ban, allowing Chinese carriers to operate one flight to the U.S. for each flight that China grants to American carriers.
U.S. airline shares surged amid a broad market rally and signs that travel demand is starting to rebound. A Standard & Poor’s index of major carriers jumped 7.6% at the close in New York to the highest since March 27. United Airlines Holdings Inc. led the gains with a 13% increase to $33.65, followed by Alaska Air Group Inc.’s 8.6% advance to $39.30.
Boeing also surged 13% after a report from IATA, a trade group, indicated a recovery was underway for global airlines after demand for travel reached a nadir in April. Even so, the trade sparring adds to the risk and uncertainty for Boeing’s 737 Max and 787 Dreamliner, two aircraft that are critical to the planemaker’s recovery from the worst downturn in aviation history.
The uncertainty over a phase one trade deal leaves in limbo a potential bonanza of plane orders that would help Boeing avoid deeper cuts to jetliner production. China’s airlines, which are recovering from the pandemic before their peers in the U.S. and Europe, could also provide a much-needed boost to the best-selling Max once a global grounding is lifted.
“I could see Boeing becoming a pawn in this game,” said George Ferguson, an analyst with Bloomberg Intelligence. For the manufacturer, sales to China’s airlines are “a decent part of the backlog.”
Chinese central planners, who control the country’s aircraft purchases, were traditionally careful to balance Boeing and Airbus SE orders to drive better bargains with the manufacturers, Ferguson noted. But while China was the largest customer of the 737 jetliner before Trump was elected, its airlines last ordered the Max in September 2016, according to Boeing’s website. The country hasn’t bought any planes from the U.S. manufacturer in two-and-a-half years.
The Transportation Department order is aimed at Air China Ltd., China Eastern Airlines Corp., China Southern Airlines Co. and Xiamen Airlines Co. The news came after the market close in Shanghai and Hong Kong, which are major trading centers for publicly held Chinese airlines.
While the Transportation Department’s order applied only to passenger flights, it isn’t clear whether the spat could eventually spill into the burgeoning air-freight operations between the U.S. and China.
Couriers such as FedEx Corp. and United Parcel Service Inc. have had to ramp up operations in China to fulfill demand for medical supplies and other equipment. At the same time, several U.S. passenger airlines have begun flying cargo in empty passenger planes as they struggle for revenue during the unprecedented downturn triggered by the virus.
The trade group that represents large U.S. carriers, Airlines for America, applauded the government’s action. “We believe DOT’s order will ensure fair and equal opportunity for passenger airlines with respect to service to and from China,” the group said in a statement.
China’s embassy in Washington didn’t respond to emailed requests for comment.
The Transportation Department on May 22 said China had violated a bilateral agreement allowing airline service between the two countries by failing to respond to requests by Delta Air Lines Inc. and United. The department accused China of unfairly blocking the carriers’ attempts to resume service in that country.
The DOT on Wednesday accused the Civil Aviation Authority of China of being “unable to communicate definitively” when it will allow U.S. airlines to resume flights.
Delta originally sought to resume China flights on June 1 but has had to delay because the Chinese government hasn’t approved its application. It’s currently seeking to restart flights on June 11 between Detroit and Shanghai and Seattle and Shanghai, both with stops in Seoul.
“We support and appreciate the U.S. government’s action to enforce our rights and ensure fairness,” the Atlanta-based carrier said in a statement.
American Airlines Group Inc.’s last China flights departed on Jan. 31. It’s currently set to resume flights to China in October. American had an average of six total daily nonstop flights to the cities of Hong Kong, Shanghai and Beijing from Dallas-Fort Worth and Los Angeles. Hong Kong isn’t covered in the DOT order.
United also plans to resume three routes to China as early as this month, pending regulatory approval. That would be for service from San Francisco to Beijing and Shanghai, and between Newark, New Jersey, and Shanghai.
“We look forward to resuming passenger service between the United States and China when the regulatory environment allows us to do so,” United said in a statement.
In early January, there had been approximately 325 weekly scheduled flights between the two countries. That fell to only 20 per week by four Chinese carriers by mid-February, according to the DOT.
Earlier this year China said in an order that airlines couldn’t operate more flights than they had scheduled on March 12. However, by that time, U.S. carriers weren’t flying there, making it impossible for them to resume service, the DOT charged.
China’s order “effectively precludes U.S. carriers from reinstating scheduled passenger flights to and from China and operating to the full extent of their bilateral rights, while Chinese carriers are able to maintain scheduled passenger service to and from each foreign market served as of the baseline date, including the United States,” the DOT said in its order.
©2020 Bloomberg L.P.