Boeing’s China Problem

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for free for two months at To, from, or through China, more than half
a billion passengers fly each year. By 2035, that number is expected to be 1.3
billion. It is one of the fastest growing aviation
markets in the world, is home to what is believed to be the future busiest airport in the world,
and is expected to soon surpass the US to become the single largest aviation market
in the world. Last year, a new aircraft was delivered to
a Chinese airline every 21 hours. That’s $35 billion worth of aircraft purchased
in a single year. All of this, however, represents a considerable
problem for the world’s largest aircraft manufacturer—Boeing. You see, the reason China is a problem for
Boeing is also part of the reason why China is already such an enormous market for them. While the US is resoundingly Boeing’s number
one customer, at least partially propped up by government defense contracts, China safely
holds the number two spot. Excluding North America, China, in fact, singlehandedly
earns Boeing more money than every continent in the world. Now, not only is China a fierce battle-ground
between Boeing and Airbus, even if Boeing has a slight overall edge in market share,
but the company now also faces a trifecta of issues potentially hindering its future
dominance in this ultimately crucial aviation market. The first of these issues has to do with Boeing
brand new yet beleaguered airplane—the 737 MAX. Prior to the MAX’s grounding, China was,
by a wide margin, the largest operator of this airplane. Its airlines had a total of 97 MAX’s while
US’ airlines, representing the second largest customer group, only had a total of 72. This is an aircraft particularly well-suited
to China’s geography. With a number of smaller, secondary or tertiary
cities, China’s airlines are increasingly focused on developing non-stop flights bypassing
the major hubs of Beijing, Shanghai, and Guangzhou, or fights to lower demand cities outside of
China. This is especially true given the huge number
of smaller airlines operating in China who have established themselves by setting up
hubs in some of the country’s smaller cities whose populations more recently started the
transition into the country’s middle and upper classes than those of the country’s
tier one cities. Of course, flying to or from these smaller
cities means lower demand for seats, however, the longer-range, smaller-capacity capability
of the 737 MAX perfectly suits this mission. That allowed Chinese airlines to set up, in
an economical manner, flights like Jinan to Singapore, Guangzhou to Lahore, Ürümqi to
Bangkok, or Hangzhou to Hotan—all five or six hours flights with minimal demand. The 737 MAX was an aircraft perfectly suited
for China and Boeing knew it. This suitability and focus was demonstrated
by Boeing’s decision to set-up an aircraft completion center in Zhoushan, China. While aircraft would continue to be primarily
assembled in Renton, Washington, they would be flown over to Zhoushan without the interiors
completed. In Zhoushan, their seats, overhead bins, and
basically the entire rest of their interiors would be installed by Chinese workers in this
Chinese factory. Having a ground presence in China would appease
the government, and by extension airlines, and the hope was that this would help convince
them to buy Boeing jets considering that their purchase provided Chinese jobs. This was especially necessary considering
that Airbus already had an even more extensive final assembly line in the country for its
competing a320 jets. Given the MAX’s suitability, though, Chinese
airlines bought an enormous number of these planes. In addition to the 97 already delivered, Chinese
airlines had almost 500 of them on order but then, of course, the MAX crashed, and then
it crashed again. China’s Civil Aviation Administration, eager
to maintain the country’s recent streak of aviation safety, quickly grounded the MAX
after its second crash making China the first country to do so. This was a rather shocking move as historically,
every country’s aviation regulator more or less just followed the lead of the American
FAA in these decisions. It was thought that, if the FAA said it was
safe, it was safe, an in this case, the FAA initially asserted their confidence in Boeing’s
737 MAX and chose not to ground it immediately. Now in the aftermath of this, the grounding
of the MAX has presented Beijing with three gifts. First, especially in the case of the state-owned
airlines and leasing companions, the Chinese have a much stronger negotiating position
than before with Boeing as the company works to regain the momentum it had before. Prices, which typically vary widely from airline
to airline and deal to deal, could end up lower. Secondly, China’s three largest airlines,
which are all state-owned, are asking Boeing for compensation for the grounding of their
jets. By extension, this is essentially the Chinese
government, the very one that holds the keys to the Chinese aviation market, asking Boeing
for compensation and, if Boeing doesn’t comply in what is possibly largely a symbolic
move, the Chinese government could decide to reduce future Boeing orders, potentially
in favor of Airbus. While Boeing is seemingly setting itself up
to offer compensation to airlines affected by the MAX’s grounding, whatever it gives
to the Chinese airlines, however favorable the company is with them, they will have to
match this precedent for their compensation with every other of the world’s affected
airlines. What could end up the most formidable MAX
challenge, though, is that the Chinese aviation regulator has now established itself as a
leader. It was them who made that first decision to
ground the jet that started the domino effect of other national regulators grounding the
MAX. Considering China’s regulator now successfully
flexed their muscle in this space, the American FAA, which has deep links to Boeing and has
allowed Boeing to essentially self-certify certain aspects of their new aircraft, has
lost some prowess in its role as, in a sense, “the world’s aviation regulator.” Therefore, not only will China’s regulator
likely take a more independent route in re-certifying the MAX once its issues are resolved, it will
also possibly feel free to make its own independent decisions on the airworthiness of future aircraft. This is a precedent that should have Boeing
concerned. Now, a smaller but significant second issue
for Boeing is the ongoing trade-war between the US and China. While Boeing has not yet encountered clear
implications from this trade-war, some speculate that the company could be used as a pawn. You see, China’s three largest airlines—China
Southern, China Eastern, and Air China—are all majority government owned and therefore
their orders can be used as a sort of political tool. To date, these three airlines’ fleets are
slightly weighted towards Airbus planes, despite the country’s airlines as a whole on average
having a slight preference towards Boeing, but they still do operate a significant number
of Boeing planes. While Boeing is not, of course, a state-owned
company, they are the US’ largest exporter and a major American employer and therefore
the US government and Department of Commerce works hard to prop them up. As the largest international market for Boeing,
China has the keys to either help or hurt America’s economy through how many planes
it decides to order. In the height of the US-China trade war, in
March, 2019, Chinese President Xi Jinping announced a massive $35 billion order of 300
Airbus aircraft by China’s state-owned aircraft leasing company. While you can never know for sure, this certainly
was viewed as a move at least partially intended to send a message to the US. Meanwhile, since the beginning of the trade-war,
there has been a noticeable lack of significant Boeing aircraft orders by Chinese airlines. These, however, are most all fairly short-term
threats. The trade-war will pass, the 737 MAX will
take the skies again, but what is perhaps Boeing’s largest problem is still to come. Their largest threat is that China is building
their very own plane. It’s being built by the Commercial Aircraft
Corporation of China or COMAC. Now, to recap, in the commercial jet aircraft
manufacturing space, there’s of course Boeing and Airbus, then there’s Embraer, which
is in a joint venture with Boeing, and Bombardier, who’s flagship C-series program was bought
by Airbus. Therefore, Boeing and Airbus control an enormous
majority of the industry. Aside from that, the only major unaligned
aircraft series is the Bombardier CRJ regional jet who’s manufacturing rights are in the
process of being bought by Mitsubishi. There’s then the Russian United Aircraft
Corporation producing a small number of Ilyushin, Tupolev, and Sukhoi jets and an even smaller
number of commercial jets produced the the Ukrainian Antonov company. These Russian and Ukrainian aircraft tend
to mostly be bought and operated by Russian and Ukrainian airlines, so, in terms of global
aircraft competition against Boeing and Airbus there really is none. It is the textbook duopoly. COMAC, however, could break that. It may surprise some to hear that there are
already COMAC aircraft flying in China’s skies—the ARJ21. This small, 78 passenger jet was COMAC’s
first significant foray into commercial aircraft manufacturing and it has been, to put it bluntly,
a disaster. When it was first announced in 2002, the aircraft
was supposed to take the skies in 2005. In reality, though, the first prototype wasn’t
completed until 2007, the first test-flight didn’t happen until 2008, and then after
delay upon delay upon delay, the first commercial flight didn’t happen until 2016. Since then, the issues have not let up. The aircraft was plagued with reliability
and capability issues and, to date, only fourteen are in commercial service. Now, it would be quite reasonable to question
why this aircraft could threaten Boeing especially considering that Boeing doesn’t even develop
an aircraft in a similar size to the ARJ21. The answer is that it doesn’t. The aircraft that should make Boeing nervous
is this—the Comac C919. Worth noting is that Boeing is actually in
a joint venture with COMAC for its final-delivery plant in Zhoushan, but that certainly doesn’t
stop the companies from competing. Just by looking at this plane you can tell
it’s built to compete directly with Airbus’ a320 and Boeing’s 737. It’s designed to carry pretty much the exact
same number of passengers and it even uses the same engines at the a320neo and 737 MAX,
but let’s be clear, the c919 is not the a320 or 737. It’s a brand new aircraft by a brand-new
aircraft manufacturer and it’s abnormal for even Airbus or Boeing’s new aircraft
introductions to go smoothly. Designing aircraft is difficult. The c919 is still in its testing phase so
its true performance and reliability statistics are not yet verifiably known, however, in
all honesty, the success of this plane has less to do with its actual capability than
probably any other plane in the world. The success of this plane has to do with whether
the Chinese government decides it will be successful. Of China’s eight largest airlines, just
one, Hainan Airlines, is not government owned. China’s government holds the keys to hundreds
or thousands of aircraft orders—why would it order from anyone but itself? Unsurprisingly, quite a few of the C919’s
orders to date have come from Chinese state-owned airlines and aircraft leasing companies. Its only non-Chinese order came from GE’s
aircraft leasing division—possibly as a vote of confidence considering the C919 uses
GE engines. The real test on whether the C919 is actually
a good plane will come once it enters commercial service, its reliability and capability is
exhibited to the world, and foreign airlines consider whether they want to order it. With China’s expertise in low-cost, high-tech
manufacturing, it could possibly prove a low-cost alternative to the a320 or 737 which has had
some airlines intrigued—most visibly Ryanair who’s CEO said he would be seriously interested
in the aircraft if a 200 seat variant was developed. China also has increasing geopolitical power,
especially in pockets of Africa which also have fast developing aviation markets, and
this could translate to a number of politically aligned countries choosing to buy and operate
COMAC planes. Overall, the real challenge to Boeing is the
opportunity. If they miss the opportunity to become a dominant
player in the world’s future largest aviation market, they could have trouble maintaining
their position as the world’s largest aircraft manufacturer. Being number one means that staying number
one is the expectation, not the goal, and so the Chinese market, while it is an opportunity,
is also a requirement. Now, in a similar vein, anyone who’s been
number one in anything knows that staying there requires continuous improvement. That means that no matter if you’re at the
beginning of your career or if you’re already at the top, you know that you should be constantly
improving yourself. Part of the way that I make sure I’m always
doing that is by using Skillshare. Their courses are a great way to quickly and
simply learn new skills. For example, for anyone that has to do presentations,
whether it be at school or work, I’d highly recommend the Skillshare original called,
“Presentation Essentials: How to Share Ideas That Inspire Action.” Presentation seems like a simple thing, but
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you can take with Skillshare, all of which you can access for free for two months by
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than $10 a month.

Maurice Vega

100 Responses

  1. The fixes for the max are being held back like what happened to NASSA . Yes they need to be fixed properly but give China the opportunity they will lose the initiative and the market.

  2. It's going to start off unreliable and cheap. Then after a few years it will be more reliable, possibly even more reliable than the competition, and cheaper still. You see the Chinese are moving on into robotic manufacturing. That will make it cheap, but like everything else they manufacture, it has taken a few years to get the products right, as it does for anyone developing a product, but the difference is the Chinese improve faster. Everything happens faster in China. They can build a whole city faster than it takes to build a nuclear reactor back in Blighty. lol

  3. Please make a video on Air Asia and Malaysian airlines safety standards.
    I think they are not allowed to fly in Europe airspace

  4. Boeing and the FAA have been incredibly stupid concerning the Max, the only reason I can think of why this happened is because both considered themselves above ordinary considerations and a law unto themselves. They have opened the door for China and helped Airbus at the same time, unbelievable.

  5. Yes, COMAC already stole US technology.
    I worked at GE Aviation.
    COMAC contracted with GE to design, test and manufacture avionics for them.
    COMAC pulled out of the contract when GE developed most of the design and tech.
    COMAC took the IP and ran, made their own planes.
    So GE payed millions to develop the tech, only to have China renege on the contract.
    China- 1, GE- 0.

  6. This is somewhat misleading. The world does not tank its cues from the fAT, in fact the FAT were the last authority worldwide to ground the plane. The Ethopian, Canandia and UK authorities were one of the first to respond, with China and Europe and the rest of the world, excluding USA, swiftly following.
    The history of how this plane came to market I horrific and I never expected it from Boeing, having always held them in such high regard. But ever since their merger with McDoanld Douglas, its been all about the profit. This situation is just BS however, if you have the finance there is definitely a gap, or rather a gaping hole, for a new manufacturer.
    But please remember, the rest of the world's aviation don't wait on the drippings of the FAA , they are quite capable of making their own decisions, as is evident by the worldwide grounding of a beautiful but flawed plane.

  7. Another aspect of Chinese air travel not mentioned is air space overcrowding around the major cities. I do wonder if one day Comac will buy the rights and tooling for the Airbus A380. It has been a commercial flop for Airbus, but is actually a good plane in search of a purpose. Reducing air space congestion around the biggest Chinese cities may be that purpose.

  8. Boeing has a safety and quality problem,…let's start with that.

    Not to mention that, the US government and the FAA have both grandfathered in either their direct backing and in the case of the FAA their carte blanc approval to Boeing.

    And that's wrong on soooooo many levels.

  9. nobody trust 737max anymore or Boeing for that matter..they don't keep their word and cut corners on safety and make huge profits by compromising safety

  10. You forgot to mention that C919 is build together with Russian company Irkut which is simultaneously developing MS-21 aircraft. Yes, GE engines are currently installed on C919 but its gonna be changed for PD-14 as soon as Russian institutions will finish the development of that. So it's even more dangerous since soon we will have MS-21 and C919 taking on Boeing 737 and Airbus A320neo together 🙂
    Also there's a potential competition if Russia finally reallizes what to do with Il-96-400M because it needs new engines which Russia doesnt have but its a very good plane that can carry more than 450 passengers

  11. "Civil aviation" in China? BS! They are all military transports supporting the conscienceless CCP. Boeing is a mindless, commercial whore!

  12. So you are saying Comac should have rushed through the ARJ21??? It's a commercial plane – not a bicycle! If they rushed it would end up crashing like the Boeing 737. Comac's record is safe… That's what they are concerned about.

  13. china is going too take out all seats but 1st class and make everyone stand so they can fly 2 times as many people per a plane.

  14. Haha. Boeing Sucks. There politically correct hiring practice has bit them in the ass. Serves them right for not hiring the most qualified(mostly white) engineers.
    The MAX is Dead. So is Boeing

  15. the FAA allowed Boeing to self regulate on some things Wow what a monumental F…up! how typical of an America Inc. Corporation eyeing the potential dollars first before completing the job with aplomb .

  16. Boeing will fix the problem that caused the two crashes. There's no doubt of that. The trade war with China would have caused China to cancel its future purchases anyway. The US can retaliate by not certifying the Chinese plane and not granting it landing rights in the US or its territories. It can also pressure its local allies like South Korea, Vietnam, Australia, and Japan to do the same.I don't think it will take too much persuasion. The EU will continue to rely on Airbus as its number one supplier. I doubt China will make many inroads in that market. Russia is also developing its own new passenger plane and so is not likely to allow China to compete effectively there either. The FAA has already given China a large number of defects in design and construction to fix. Perhaps the list will grow longer indefinitely. Boeing will rely to a large degree on the US domestic market and on its military products for its customers. Many outside the US not directly involved with the US China trade war will continue to purchase Boeing civilian aircraft for their fleets.

  17. I hope COMAC succeeds. I love all the high quality low priced things I buy from Walmart.
    For all you high priced labor workers – FU.!!!

  18. So wrong. The Max will get recertified – and the Chinese will take delivery. The wait for A320’s is too long.; all airlines will get some compensation from Boeing. The Trade War is hammering the already poor economy much, much more than the US – please start getting your business news from a source that isn’t far Left and anti-Trump. And the 3rd issue – COMAC – is as much Airbus’ as Boeing. Yes, the Chinese will be buying their own planes. Some poorer Asian countries might to – but not that many.

    Usually like your videos but this is very poor, with no basis in reality.

  19. Boeing, can you just make a good plane? You will be out of the Chinese market, not because of China, it is because Boeing cannot make a good plane.

  20. Honestly fuck Boeing.

    Surrender your safety testing to Europe,

    Then yes Boeing.

    When you’re serving a Global market you shouldn’t be the only one allowed to investigate yourself regarding safety implications.

  21. Amazing video as always. You say the C919 has the same engines as the neo and MAX (CFM Leap1A/ PW1000G on some neos) but you say the C919 will operate GE engines. Do you know which ones?

  22. That's a good example of trade war casualties: Boeing will permanently lose China market. Because, American companies like Boeing are seen as unreliable. When trade relationship goes sour, everything can be weaponized. When trade war further deepens, China will cutoff rare earth supplies to the US and that'd be devastating to tech industries and economy.

  23. Just a whif of bias, but a bias still: FAA not being the "worlds" sole aviation authority is not a "problem", but a god-sent gift to global aviation safety. Especially after the scandal that is FAA allowing Boeing certify it's own products under the pretense of defending Boeing in global competition. When you admit to taking your own side, you can't claim to represent everybody. That's just not going to happen.

  24. ?
    Boeing made a faulty product, they need to compensate their customers regardless of who it is, government or private. How is it a symbolic move from the chinese government point of view when the losses of not running a X number of planes on Y number of flights over Z number of days literally calculable?

  25. I am kind of curious why COMAC is having problems with the ARJ21. It is essentially a DC-9. And the DC-9 is a fairly simple aircraft as commercial aircraft go. Cables not hydraulics(or fly-by-wire), a relatively simple flap and slat wing.
    The main change was a new engine. Douglas did not have a lot of problems back in the 1960's developing the plane.

  26. Boeing is in Seattle, lived there for a decade and they only are good for the Washington state population, not the rest of country. Sooo maybe it’s time we get another airplane company in American soil 👍

  27. Wait! Did this video just say $35 billion worth of [Boeing] aircraft sales to China? Clueless Wendover Productions is totally out of touch with reality. Since last year, China has paid the US over $65 billion for the tariffs on Chinese goods. Next year, the money is going to reach over $100 billion as a result of new tariffs. You do the math. Does the US need more aircraft sales to China? Probably NOT!

  28. Wait! Did this video just say $35 billion worth of [Boeing] aircraft sales to China? Clueless Wendover Productions is totally out of touch with reality. Since last year, China has paid the US over $65 billion for the tariffs on Chinese goods. Next year, the money is going to reach over $100 billion as a result of new tariffs. You do the math. Does the US need more aircraft sales to China? Probably NOT!

  29. Nah, Chinese made aircrafts are the worst. They're noisy, unreliable and unsafe. Similarly, other countries like Russia have built their own planes, but they have gone nowhere. Despite some accidents here and there, Boeing aircrafts are still the safest on the planet. According to the latest reports, the average person living in the United States has a 1 in 102 chance of dying in a car crash, compared to a 1 in 205,552 chance of dying as a passenger on an airplane.

  30. Besides computer parts like chips , its all over soon for US made planes like Boeing , the Chinese C919 and Russia China C929 are coming out soon. China Air Force is also buying more Russian renewed and improved SU57 after the initial deliveries were found to be fantastic by the Chines air force pilots.

  31. Boeing has worked with US Military and gets so many contracts so far. So does Huawei, get so many contract both from PLA and Chinese Government.
    US plays Huawei Card. China plays Boeing Card.
    What us the different?

  32. Boeing doomed herlsef i mean i watch a documentary that People work with Boeing refuse flying in that plane! because they know how much it is not save! God
    i watch some documentary about Boeing plane accident! but what make WTF in contract with country they have No right to blame Boeing if the accident was because the plane not the pilote! LOL

  33. The world used to listen and take clues from the US FAA in most matters having to do with aircraft operation. BUT, now after the 737 MAX debacle, they showed just how deep they were in Boeing's pocket. (By allowing Boeing to fix and regulate them self) The Chinese FAA will now be the world respected regulatory organization for aircraft.

  34. i hate China but i like that they challenge the US when it comes to power, The US always think they can get away with everything so someone needs to put them in
    their place

  35. Please make a video on logistics of movie making..for example all aspects of avengers,from star cast to planning to VFX pipeline

  36. "we want compensation for choosing not to use your planes!"

    typical china…
    I can't wait til they build their own plane and cheap out on everything, kill a bunch of people, and blame boeing/airbus because they copied their planes poorly.

  37. "Just by LOOKING at this plane, you can tell it's built to compete directly with Airbus' A320 and Boeing's 737"
    uhhh no I did not notice that

  38. If Ryan Air or any other non-Chinese airline were to start using the C919, I would never take that flight. I wouldn't trust the build quality.

  39. I generally dislike communists but china took the right decision by grounding MAX. FAA's corrupted behaviour was endangering lives of passenger around world.

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