Boeing Strikes a Balance with China After a Big Win


Boeing (NYSE:BA)

Boeing (NYSE:BA) is finally looking better, but the journey forward will be long and tough, and that won’t change soon. Boeing’s supply chain and geopolitical concerns are impacting order intake and deliveries. These issues come on top of Boeing’s accumulated debt during the 737 MAX debacle. Some aspects are improving, but not as quickly as we’d like. 

Geopolitics is one of Boeing (NYSE:BA) most significant problems since it stalls hundreds of commercial aircraft purchases. In a previous post, I highlighted why Pelosi’s journey to Taiwan represents a setback for Boeing, which has less to gain and much to lose. Boeing won some business, and it’s a significant gain given the present situation of the market sector. This story discusses Boeing’s win and its relationship with China.

Boeing’s China sales are behind.

China’s plane-buying system and most airlines are state-owned. Behind it lies a web of Chinese interests that goes beyond aviation. So, when political tensions arise, China has a powerful instrument to punish the US, its most significant exporter. Losing sales in China can’t be compensated due to process and size.

China’s fleet of around 4,000 aircraft is expected to rise to 10,000 by 2041, with 8,500 deliveries. Boeing has no sales or deliveries, and no market can absorb them. So, Boeing (NYSE:BA) is losing sales for now, but it might gain some in Taiwan, which has US support. Taiwan’s aviation market is tiny. A simple count shows that Taiwan has 230 airplanes. Taiwan’s market is 17-18 times smaller than China’s. Hence aircraft makers have less sales potential there.

Boeing secures Taiwan sales.

Boeing (NYSE:BA) won sales in Taiwan, which, although not balancing the loss in China, is a huge victory. Taiwan’s national airline, China Airlines, will get its first Boeing 787-9 in 2025. The acquisition is listed for $4.7 billion, but with discounts, it will be closer to $2.4 billion. The airline has options to convert 8 Boeing 787-9s to the more significant -10 type, boosting the total value to $3.6 billion.

This helps Boeing. Since Boeing 787 deliveries were halted, the jet maker had trouble selling its next-generation wide-body plane, and production was cut to two per month. The acquisition will offer 8 months of work at Boeing’s current production pace and 4 months more if options are exercised. These 16 planes will also be added to Boeing’s production schedule, which may reach 6 per month by 2025, giving 3 months of production or 4 months if options are exercised. So, Boeing won big.

The Dreamliners will replace the Airbus A330, which helps Boeing (NYSE:BA). 10 of China Airlines’ 22 Airbus A330-300s will be 20 years old by 2025. Options exist to convert to the larger Dreamliner model, which hasn’t sold well.

Boeing’s Selection Policy Is Quiet

When an airline selects an airplane, Boeing and Airbus release announcements, and beautiful renderings. This time, no. Boeing may wish to avoid angering China. While the US aircraft maker has de-risked China from Boeing 737 MAX manufacturing, it still plans to resume operations and deliveries to China shortly, deliver Dreamliners, and collect new orders for the type. Boeing has chosen not to publicize China Airlines’ fleet selection.

According to Reuters, Boeing (NYSE:BA) may not have issued a striking statement since the transaction isn’t finished.

China Airlines has chosen the 787 Dreamliner to upgrade its fleet, and we look forward to finalizing the deal.

Boeing (NYSE:BA) has previously released remarks on order selections or purchases that haven’t been finalized. Thus, Boeing’s lack of attention to this critical success is likely due to not wanting to upset China.

Boeing’s stock is improving.

China Airlines’ pick of the Dreamliner indicates sustained strength and trust in the Boeing 787 platform and is one of the orders Boeing will use to enhance Dreamliner production, which is still a cash-positive platform for the US jet maker. So, slowly but surely, Boeing is recovering and showing that even with a tarnished reputation, it can compete with Airbus (OTCPK:EADSF) (OTCPK:EADSY).

Boeing (NYSE:BA) hasn’t given the selection as much attention as it needs, which is tied to the problematic relationship between the US and China. Boeing is stuck in the middle, watching its sales and delivery momentum dissipate in the most critical market for any aircraft maker.

Featured Image – Megapixl © Michaelvi

See Disclaimer Please

About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.