Boeing, China Swap Jet Deals as Xi's Visit Underscores Stakes

China, Boeing Ink Two Deals During Xi Visit
  • Ties date to Nixon's 1972 trip in a 707 to thaw relations
  • Boeing gets a $38 billion jet order; China gets a factory

In a display of give and take, Boeing Co. unveiled its largest industrial investment in China and landed $38 billion worth of jet orders and commitments from Chinese carriers and lessors as the country’s president visited Boeing’s main factory.

Wednesday’s announcements, which came during Xi Jinping’s first state visit to the U.S, underscored the intertwined interests of the world’s largest planemaker and an aviation market on track to soon become the world’s biggest.

“We are now proud to extend our partnership with a new, mutually beneficial collaboration,” Boeing Chief Executive Officer Dennis Muilenburg told airline officials, employees and reporters gathered in a factory bay in Everett, Washington.

Boeing’s ties in China date to 1972, when President Richard Nixon flew there in a 707 to thaw relations with the Communist country, Muilenburg said. China is Boeing’s largest international market and a critical battleground in its tussle with Airbus Group SE to dominate the global jetliner industry.

Few Details

Details of the new agreements remain vague. The “general terms agreement” announced Wednesday covers orders and commitments for 190 single-aisle 737s and 50 wide-body jetliners, although models and customers weren’t disclosed. Lessors ICBC Financial Leasing Co. and CDB Leasing Co. are taking another 60 737s. It’s not clear how many of the orders already have been placed and marked as “unidentified” in Boeing’s order book.

China is poised to displace the U.S. as the world’s biggest aircraft and travel market in two decades, according to Boeing. It predicts airlines will need to add 6,330 new planes worth $950 billion by 2034 to keep pace with travel growth.

“The emerging middle class in China is helping to boost demand,” said Mohshin Aziz, an analyst at Malayan Banking Bhd. in Kuala Lumpur. “Most of the planes ordered will be for growth, and very few will be for replacement.”

Boeing’s planned facility in China will paint, complete the interiors and deliver single-aisle 737 planes to Chinese customers, the company said Wednesday.

Finishing Center

The center would be Boeing’s largest industrial expansion outside the U.S. Boeing will still build its best-selling jets at a plant outside Seattle, but those for Chinese customers will eventually be flown to the new plant for finishing work before delivery to local carriers.

The center will be operated jointly with Commercial Aircraft Corporation of China Ltd. The new plant will help speed jet deliveries from Boeing’s Renton, Washington factory as the company tries to raise production from the current 42 a month to 47 in 2017 and 52 by 2018 to meet “strong demand” for the world’s most fuel-efficient plane, according to Boeing.

The joint-venture partners are working with Chinese government officials on a final business agreement and will announce the facility’s location and the timing of first deliveries later, Boeing said.

China has encouraged foreign planemakers to expand their industrial base as its fledgling aerospace industry takes shape. Airbus assembles single-aisle A320 planes in its Tianjin factory, near Beijing, that mostly go to the Chinese market. The European planemaker said in July it was finalizing an agreement with Chinese authorities for a completion center for its A330 wide-body model.

No Guarantee

Setting up a local facility may help planemakers win large orders from China, but it doesn’t guarantee sales success. McDonnell Douglas Corp., the U.S. planemaker acquired by Boeing in 1997, failed to make significant inroads after building plants there to assemble MD-80s and MD-90s, said Richard Aboulafia, an aerospace analyst with Teal Group, a Fairfax, Virginia-based consultant.

"They were a very distant third" to Boeing and Airbus, Aboulafia said. Although the government has the final say on aircraft orders, "Chinese airlines have more autonomy than ever in purchasing decisions."

Xi said China would continue to support development of its own large commercial planes, including Comac’s C919.

Boeing also said it would broaden its agreement with Aviation Industry Corp.
of China, a supplier, to add major component and assembly work packages.

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