China’s Jet Challenge

A Threat to Boeing and Airbus?

By | Updated June 2, 2017 5:03 PM UTC

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 becoming 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 completed its maiden test flight in May, a 79-minute trip through the skies over Shanghai. Comac, which describes its project as the “flower of modern industry,” has produced something of a hybrid: the 174-seat, single-aisle jet uses customized parts from Boeing and Airbus models. Media reports suggest the C919 is priced to sell, with discounts to its Boeing and Airbus equivalents estimated at 20 percent to 50 percent. Comac, or Commercial Aircraft Corp. of China Ltd., had orders and commitments from 23 mostly Chinese buyers for 570 airplanes as of late 2016, with China Eastern Airlines Corp. due to take first delivery as soon as 2019. Authorities are seeking agreements on airworthiness with U.S. and European regulators to open the way for flights outside China. While aircraft makers risk losing market share (Airbus and Boeing had 97.5 percent of global single-aisle jet sales last year), Comac’s international suppliers — from General Electric Co. to Honeywell International Inc. — stand to gain from a successful rollout of the C919. Even if all goes to plan, full-scale production is years away. 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.

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 before 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. President Xi Jinping’s push for a more sophisticated manufacturing sector has 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, 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, including 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 around 2024

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, reliability and safety, analysts say. Acceptance in Europe and the U.S. will be a challenge, they add, recalling how Chinese consumers soured on domestic high-speed trains after an accident in 2011. Critics also argue that Comac is replicating outdated versions of jets, rather than creating state-of-the-art aircraft, and needs to privatize and open its supply chain to a global network rather than to companies only prepared to transfer yesterday’s technology. 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

First published June 1, 2017

To contact Bloomberg News staff for this QuickTake:
Dong Lyu in Beijing at dlyu3@bloomberg.net

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