Bloomberg News and Herald staff
Boeing has been negotiating one of the largest orders ever of Everett-built wide-body jetliners with Chinese airlines, even as tensions between Washington and Beijing escalate, say people familiar with the talks.
The discussions center on about 100 twin-aisle jets: 787 Dreamliners as well as 777X planes, the newest long-range aircraft in Boeing’s lineup, said one of the people, who asked not to be named because the talks are private. Negotiations have focused in particular on the 777-9 variant, the plane-maker’s costliest jet with a $442.2 million sticker price.
No deal is imminent, the people cautioned, and the trade war is a major complication for all involved. The Chinese side is waiting for guidance from the government before pushing forward with discussions, according to some of the people, as the tit-for-tat fight between the U.S. and China intensifies.
The potential order would be worth more than $30 billion before customary discounts, depending on the mix of aircraft.
The negotiations underscore the overlapping interests in aviation between the two nations. Boeing, under pressure over the worldwide grounding of the Renton-built 737 Max, is the largest U.S. exporter. The deal would help reduce the U.S. trade deficit with China.
Meanwhile, The Seattle Times on Wednesday reported that 777X supplier GE has had “challenges,” as a Boeing executive put it, in producing engines for that airplane.
“They are having to do some re-testing,” Greg Smith, Boeing’s chief financial officer and executive vice president for strategy, said at the UBS Global Industrials conference in New York.
The first two 777-9 airplanes have been rolled out of the factory at Paine Field, and two more are in final assembly, The Seattle Times said.
Aviation analysts had expected a first flight of the plane this month, but that was before news of an issue with engines. As for the timeline, Smith would only say what the company has said previously — that the 777X is expected “to fly this year and enter service in 2020.”
Smith also raised the possibility that production of the second version of the plane, the smaller 777-8, might be delayed due to lack of near-term demand.
Boeing is “looking at the timing and demand for the -8 to see if that still makes sense, and do we want to push that out?” Smith said.
On the potential sale to China, Boeing declined to comment, while China’s Civil Aviation Administration didn’t immediately respond to a request for comment from Bloomberg News.
China is an emerging aviation superpower, on pace to become the world’s largest aviation market in the 2020s. It has ambitions of eventually joining Boeing and Airbus as a dominant global plane-maker, but the first locally developed wide-body jet is at least eight years away. That leaves the country’s airlines reliant on the Boeing-Airbus duopoly for large jetliners to cruise over oceans and sate demand for travel by Chinese consumers.
“China’s not going to poke themselves in the eye,” said David Pritchard, associate professor and aerospace researcher for the State University of New York, Empire State College. “I don’t see them canceling Boeing airplanes.” Instead, China over time will probably shift from a strategy of carefully dividing orders between Airbus and Boeing. “Will that eventually move to Airbus’s advantage? Probably,” Pritchard said.
New Boeing planes would help replace an earlier generation of 777s, one of the people said. Boeing has sold 101 of those to Chinese airlines, according to the company’s website. While the 777-9 would make up a significant portion of the deal, there is also interest in the smaller -8, whose size is comparable to the 777-300ER, another of the people said.
Boeing has long predicted healthy sales for the 777X in China, where airlines have yet to order the hulking model. It is the first twin-engine aircraft designed to haul more than 400 travelers. Even before word there are technical challenges involving 777X engines, the timing of the plane’s 2020 commercial debut was uncertain amid a controversy over the U.S. aircraft certification process in the wake of two deadly crashes of Boeing’s narrow-body 737 Max.
With the Max grounded indefinitely, Boeing is looking to orders of larger wide-body jets to help bolster cash. The Chicago-based company is still working to reach a commercial agreement that customers in China can take to the government for approval, the people said.
Under the country’s complex airplane tender process, deals must also pass muster with regulators before they are handed off to China Aviation Supplies, which purchases all aircraft. The sales are often recorded as coming from unidentified customers by Boeing and Airbus and might be unveiled at various stages of the approvals process — and again during visits by heads of state.
Boeing is “very engaged” in the U.S.-China trade talks, CEO Dennis Muilenburg said at a Bernstein conference May 29. China initially considered putting the 737 Max on a draft list of American products the country would buy to reduce its trade surplus with the U.S., but it changed its mind amid safety concerns over the aircraft, people familiar with the matter said in March.
China was the first country globally to ground the 737 Max, Boeing’s fastest-selling jet. The move attracted attention because it disregarded the position of U.S. aviation authorities at the time. The Federal Aviation Administration eventually joined regulators around the world in grounding the single-aisle model.
Meantime, the trade backdrop is ominous. The battle over trade and technology between the world’s two biggest economies has entered a new phase, with allegations that China reneged on commitments made at the negotiating table, triggering a fresh round of tariffs and smashing a months-long detente.
Companies are being caught in the fray, with President Donald Trump blocking telecommunications giant Huawei from buying U.S. technology and looking to extend the ban to five Chinese video-surveillance firms. Beijing vowed to retaliate, issuing a travel warning for the U.S. and threatening to blacklist foreign firms. It launched a probe into FedEx for “wrongful” deliveries, and Ford Motor’s main joint venture in China was fined for alleged antitrust violations on Wednesday.
Boeing stock on Wednesday closed at $348.75, up 1.2% from the previous day. Through the close Wednesday, the shares have tumbled 17.5% since the March 10 crash of an Ethiopian Airlines 737 Max plunged the company into crisis.