China’s Jet Challenge

(Bloomberg) -- Massive, low-grade manufacturing has raised much of China out of poverty. Can high-tech wizardry lift its economy to the skies? China is on a mission to upgrade its factories, a vision that includes the long-held goal of producing passenger aircraft. It’s a market that two companies — Airbus SE and Boeing Co. — have dominated for decades, and one that the Chinese state manufacturer Comac intends to shake up with its C919 jet. There’s plenty of business to go around, with China on course to become the No. 1 market for airplanes and passengers. So should the industry heavyweights of Europe and North America be worried? And how prepared are travelers, both at home and abroad, to embrace “Made in China” aircraft?

The Situation

After at least two postponements, the C919 successfully completed its maiden test flight in 2017. Within a year, Comac, or Commercial Aircraft Corp. of China Ltd., had orders and commitments from 28 mostly Chinese buyers for 815 airplanes. Chinese authorities are now seeking agreements on the plane’s airworthiness with U.S. and European regulators to open the way for flights and sales outside China. The Chinese planemaker is also looking to ride President Xi Jinping’s Belt and Road Initiative with sales and flight approvals in regions including Southeast Asia and Africa. The C919 is a 158- to 168-seat, single-aisle jet and is built mostly with customized versions of parts from other manufacturers, such as the engine from CFM International Inc., a Franco-U.S. venture. Whatever its impact on Boeing and Airbus, a C919 ready for the market would be a boon for Comac’s web of international suppliers, from General Electric Co. to Honeywell International Inc. Still, full-scale production is several years away and can hardly be assured. Comac’s initial foray into the aviation market — a 90-seat jet called the ARJ21 — took eight years to go from first flight to commercial operation in 2016. Comac executives say the C919 will “definitely” get there faster, with China Eastern Airlines Corp. due to take its first delivery around 2021. After Boeing’s 737 Max — a competitor to the C919 — was grounded in March following a second crash in five months, Comac moved closer to a rare overseas sale to an airline in Ghana. The company has also formed an alliance with Russia’s United Aircraft Corp. to design and manufacture a twin-aisle jet capable of flying from Beijing to New York.

The Background

China’s early bids to develop passenger jets flopped. There was the Y-10, which took decades to go from its first design to its first test flights in the 1980s. But government interest waned as business with the West opened up. Then there was the MD-82, a joint-venture that collapsed after Boeing acquired China’s partner, McDonnell Douglas, in 1997. Xi’s push for a more sophisticated manufacturing sector, known as “Made in China 2025,” brought renewed impetus, since that strategy hinges on projects such as airplanes. (China’s first aircraft carrier was launched shortly before the C919’s test flight.) Boeing, whose founder William Boeing built its first plane in 1916 in Seattle, had a stranglehold on passenger jet sales until Airbus — a 1960s amalgamation of European aerospace bodies — began taking significant market share in the 1980s and 1990s. The pair now more or less split the business, accounting for 97.4 percent of the global market for single-aisle jets in 2017. They also roughly divide equally the market  in China, where passenger aircraft sales will total more than $1 trillion between now and 2035, according to Boeing. In terms of passengers, China is forecast to overtake the U.S. as the largest air travel market as soon as 2022. 

The Argument

Getting into the major league with Airbus and Boeing may be a few decades away, as airlines typically prefer planes with proven track record for reliability and safety, analysts say. There’s more to it, too, than building reliable aircraft: Comac will have to compete with the industry giants on after-sales service for repairs and maintenance. Acceptance in Europe and the U.S. will be a challenge; even Chinese consumers soured on domestic high-speed trains after 40 people died in an accident in 2011. Critics also argue that Comac is replicating outdated versions of jets, rather than creating state-of-the-art aircraft. Other industry watchers say the C919 is not intended to become the best-selling single-aisle aircraft, but rather a stepping stone for Comac to build something better with indigenous technology. Either way, a China-based company — backed by the government — is well-placed to take significant business from the established manufacturers, at least at home.  

The Reference Shelf

• Bloomberg Opinion writer David Fickling sees “huge challenges” for Comac.
• Comac showcases the C919 on its website.
• A Bloomberg QuickTake on the dwindling popularity of jumbo jets.
• Boeing recounts its history on its website, as does Airbus.
• China’s CCTV offers a brief history of the nation’s passenger aircraft industry.

To contact the editor responsible for this QuickTake: Grant Clark at gclark@bloomberg.net

©2019 Bloomberg L.P.

With assistance from Bloomberg