Industrials

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

As if it wasn't bad enough getting into a fight with the president-elect over the cost of Air Force One, Boeing Co. is facing problems from the other side of the Pacific.

Beijing is planning to step up scrutiny of U.S. companies in the event that Donald Trump flips from trash-talking the cost of presidential aircraft to taking punitive measures against Chinese exports to the U.S., people familiar with the matter told Bloomberg News Friday.

That's particularly bad news for Boeing because its Chinese business is unusually vulnerable to retaliatory action from the government. The measures could include scaling back government purchases or alternatively, investigations by tax, antitrust or anti-dumping authorities, the people said.

Fission Chips
Boeing and Yum! Brands are the only non-tech U.S. companies getting more than $5 billion in annual revenue from China
Source: Bloomberg data
Note: Shows latest fiscal year revenues from China. Texas Instruments figure includes Hong Kong.

Just eight U.S. companies earned more than $5 billion in revenue from China in their last fiscal year. Five of them are semiconductor and electronics companies whose products are central to China's high-tech manufacturing ambitions. One -- Apple Inc. -- is a consumer business whose demand is driven by public taste rather than government fiat, while Yum! Brands Inc. has already spun off its China arm into a separate business.

Boeing is in a different (flying) boat. Its biggest customers in the country -- Air China Ltd., China Eastern Airlines Corp., and China Southern Airlines Co. -- are all state-controlled. Even private carriers such as Hainan Airlines Co. know better than to go against the will of the government by ordering aircraft from a company in Beijing's bad books, especially when Airbus SE is offering comparable aircraft.

The Peripheral Kingdom
China doesn't make up a particularly significant share of aircraft manufacturers' unfilled order books
Source: Airbus and Boeing orders and delivery books, Gadfly calculations

There's a catch, though. While Boeing counts highly in the ranks of Chinese revenue earned by U.S. businesses, China isn't such an important part of the planemaker's order book. The 292 undelivered aircraft ordered by Chinese airlines and lessors make up just 5.5 percent of Boeing's total outstanding orders -- and just 4.4 percent of the total at Airbus.

India's SpiceJet Ltd. is close to finalizing an order for 92 Boeing 737s, people familiar with the matter told Anurag Kotoky and Julie Johnsson of Bloomberg News Friday, about a third the size of China Inc.'s entire outstanding order book.

Looked at in those terms, China's aviation sector is only a bit more important to Boeing than its biggest customers Southwest Airlines Co. and Ryanair Holdings Plc, and significantly less important to Airbus than InterGlobe Aviation Ltd., known as IndiGo, and AirAsia Bhd.

Other Fish in the Sea
If China Inc. were a single company, it would still only reach major-customer status for the big plane-makers
Source: Company order books
Note: Air Lease, AerCap, GECAS, SMBC are lessors. All other customers are airlines. Shows only customers with at least 100 aircraft awaiting delivery from either Airbus or Boeing.

That's somewhat cold comfort. China's domestic aviation market will still be the world's biggest within 20 years, according to Boeing's 2016-2035 market outlook, outstripping North America and Europe.

The relatively slender nature of Chinese carriers' order books doesn't mean there's no demand pending. Rather, it's a sign that the country's airlines are holding fire until Commercial Aircraft Corp. of China Ltd., or Comac, starts producing its C919 in competition with the 737 and A320 in a few years.

In that sense, the trade war Boeing needs to fear isn't just around the corner. It's already begun.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. That doesn't account for the different profitability of different aircraft models but it's a decent back-of-the-envelope figure.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net