Can China’s Aviation Industry Soar To New Heights?

Problem Identification

The massive manufacturing of China classified as low grade has made it possible for China to be elevated from poverty and can now boast as a developed economy. However, the big question is whether high-tech can play a substantial role in raising China’s economy to the skies. China has been reported to be on a mission of upgrading its firms a vision that entails the long-held objective of manufacturing passenger aircraft.

The China market has been dominated by Airbus SE and Boeing Co. for decades and the incumbent state manufacturer Comac with Comac wanting to surprise its competitors in three years to come by producing its C919 jet. There are many business opportunities, and China wants to dominate the market and become the leading market for airplanes and passengers. Thus, the heavyweights of the aviation industry such as Europe and North America have a point to worry. The big question to ask is how travelers both at domestic and internationally are prepared to accept aircraft made in China.

Following two years of constant postponements, the C919 completed successfully the scheduled first test that took place in May 2017. It is only in less than a year that Comac, a Chinese corporation dealing with commercial aircraft that it already has more than 800 airplane orders from 28 Chinese buyers. Plans are underway between the Chinese authorities and the U.S. on obtaining agreements about the worthiness of the planes. The European regulators are also in the plan as they will be crucial in opening way for both sales and flights that are from China. The C919 is a flight that will have 158-168 seats and will be primarily a single-aisle jet built and will come with customized versions as most parts are from different, for instance, the engine is from the CFM international Inc which happens to be Franco-US based venture. Irrespective of its impact on Boeing, a C919 that is up for the market means a boon for Comac’s extensive network of global suppliers spanning from General Electric company to Honeywell International.

However, production on a large scale can be said to be several years behind and can be hardly guaranteed. The initial attempt to venture into the aviation market by producing the ARJ21 which was a 90-seat jet took eight years to become a commercial activity from the first flight in 2016 (Clark, 2018). The executives from Comac have made announcements that the C919 will get to the market faster than anticipated and the China Eastern Airlines corporation will be the first to receive the first batch of consignment at around 2021. Comac has plans underway to forge an alliance with Russia’s United Aircraft Corporation to design and produce a jet that is twin-aisle that will be flying from Beijing to New York.

The early bids by China to producer passenger jets failed. For instance, the Y-10 took decades to move from first design to initial flight tests in the 1980s. However, the state’s interest faded as aviation business from the West opened up. The MD-82 was developed as a product of a joint venture that soon collapsed following the acquisition of McDonnell Douglas, a Chinese partner in 1997. China’s president, Xi Jinping’s agenda for a manufacturing sector that is complex referred to as made in China by 2025, has led to renewed impetus as the strategy impedes on projects such as the airplanes. For instance, the first aircraft in China got launched immediately before testing the C919 (Jiang, 2016).

Background

William Boeing, the founder of Boeing, manufacture his first plan back in 1916 in Seattle dominated the market for passenger jet sales, and it was until the amalgamation of aerospace bodies in the European region in 1960 that opened up doors for Airbus which commanded a substantial market share between the 1980s and 1990s (Tieman, 2017). The two companies that are Boeing and Airbus split the market and account for 97 percent of the international market for the single-aisle jet as per 2017. The same is also true for the Chinese market as the two again share the market equally where it is estimated that sales arising from passenger aircraft will amount to more than $1 trillion by 2035 as per Boeing (Clark, 2018). Regarding the number of passengers, China has been projected to surpass the U.S. in becoming the largest markets regarding air travel before 2022.

According to many analysts, getting into the same class as Airbus and Boeing are may take decades as most airlines prefer planes that have a proven track of record that demonstrates the reliability of such airplanes and safety (Clark, 2018). There is more gest to it than just manufacturing a reliable aircraft. Comac will have to face giants in the aviation industry such as other aspects such as the after-sales service for both repair and maintenance. A significant challenge lies ahead regarding being accepted in Europe and the U.S., and a good illustration is when a high-speed train killed 40 people in one of the fatal accidents reported and made Chinese consumers sour. There are allegations by the critics that Comac is replicating some of the jets that are outdated versions instead of developing state of the art jets.

On the other hand, the industry watchers are of the view that the C919 is purported not to become the best single-aisle aircraft regarding sales but rather a stepping stone for Comac to develop and manufacture something better with the Chinese technology (Anselmo & Mecham, 2011). Whichever the mode, a company with China’s origin backed by the state is better positioned to command a substantial share of the market from established players in the domestic market.

The demand for private jets in the airline industry is giving signs of hope following several years of difficulty (Thompson, 2015). The shifting global prosperity and geopolitics seem to have diverted the much-needed wave among the buyers of private planes. However, Boeing made sales that accounted for 16 business jets in 2017, and this was considered as the best sales ever since 2008 while its counterpart Airbus only sold twenty-five.

The Chinese have sought ways to help them soar the skies for many years now with the onset of the world known kites that dated more than 2000 years ago. However, the history of China reveals that by the 13th century, the military leaders in China were already using rockets. The dawning of flight age in the 20th century led to individuals such as Feng-Ru a Chinese gain regional recognition in the United States by having a powered plane tested in 1909 right after the Wright Brothers had their powered flight. In Bill Boeing’s attempts to hire the first aeronautical engineer in 1916, he enlisted Wong Tsoo who led in designing the Model C seaplane that later became the first plane for Boeing’s production.

Problems Analysis

Based on that archived history, the aerospace industry in China and the airlines are developing fast towards the future and Boeing is anticipated to yield more airplanes, abilities in the manufacturing and sound quality in the aviation services. Prominent leaders of the past such as the retired president Hu Jintao branded Boeing a household name in China and asserted that it ought to remain the same amidst stiff competition in the aviation industry.

David Wang who served as the president of Boeing in China said that one of the strategies used by Boeing is to make sure that even though China is acquainted with Boeing practices and the need for the legacy of cooperation, the spirit of working in unity and partnership has been critical in venturing such a market.

The potential of China market is hard to state with regards to the benefits that it can generate to Boeing. The population figures as per China speak for themselves. China’s population is higher than any other nation in the world. China’s economy in the past two decades has proliferated in comparison to any other emerging economy globally. Even during the period of recession that was witnessed across the globe, China’s economy grew by about 9%. China presents the largest market beyond the U.S. with regards to commercial planes. The potential to expand the demand for air travel in China as its economic growth is dwindling can be said to be huge. Since President Richard Nixon’s visit to China since 1972, more than 800 planes have been ordered for the Chinese airlines from Boeing, and this accounted for more than 60% of the orders that came since 2000. For the past nine years, it has been reported that the fleet in commercial airline has doubled to more than 1300 planes.

The number of commercial airplanes that ferry passengers has soared from 80 million to 200 million during the same duration. However, the future demand for airplanes possesses an even greater opportunity for Boeing in the Chinese market. The Chinese airlines, for instance, are anticipated to demand more than 3500 planes by 2028 with a projected market value of about $400 billion based on commercial outlook by Boeing (Downey, 2009). Based on the fact that approximately 53 percent of all commercial jetliners that fly in China are some of Boeing’s models with only 36% coming from Airbus.

Since China has a high demand for airplanes, it becomes easy to shift attention to China as the next big potential market. Boeing and China have had lasting relationships on multiple fronts with several supplier contracts spanning from mid-1970’s. For instance, all of Boeing’s commercial planes ranging from 737 to 787 Dreamliner have their parts assembled in China. Boeing on the other is a primary buyer of Chinese aviation hardware estimated to be worth $1.5 billion and procurement of the same is expected to double in future (Downey, 2009). Boeing has been ranked as the largest sole customer of the aviation industry in China. China is also identified as home to the conversion facility for the model 747-400 Boeing Converted Freighter. Also, Boeing has been involved in several Chinese joint ventures that specialize in the production of airplane parts and services.

It is through developing local talents that Boeing has made Boeing survive amidst competition from airplane manufacturers in China. With the production of Airbus A320 that was assembled as a product of a joint venture plant that was located in Tianjin. Airbus, on the other hand, has been keen on improving its orders from Chinese airlines. Also, the Chinese airline industry is planning on how to produce commercial planes beginning with the 737 model in the next five years (Downey, 2009). Boeing can benefit by engaging the public in talks regarding Boeing’s value due to its presence and programs in China despite Boeing being a household name.

In ascertaining that Boeing is not just a household brand but a superior brand in China, the marketing efforts should be focused on what distinguishes Boeing from its rivals. This entails the biofuels initiative that has gained popularity among the media, state and airline officials.

Boeing can also differentiate itself from its rivals through its services. Apart from availing airplanes to China, Boeing has played a crucial role in civilizing China’s commercial aviation resources. Boeing and Boeing Training & Flight which was a subsidiary and former Alteon played a vital role in training more than 35,000 professionals in the aviation industry in China through an initiative by China Civil Aviation Administration (Downey, 2009). The two also worked in harmony and helped improve the traffic of the air system due to the fact China’s airline routes grow rapidly particularly the eastern part of China. Due to Boeing’s efforts in helping China through training and safety, China’s commercial airline system prides itself in achieving a safety record that rivals that witnessed in the U.S. and Europe.

With the growth in China’s airlines and market changes, Boeing has continued to work its way up by maintaining robust customer relationships with such customers. Xiamen airlines, for instance, has been identified as one of the most profitable airlines and has achieved such unapparelled success as all its fleet is Boeing and five other Chinese airlines are on the 787 teams. Thus, Chinese airlines continue being loyal customers to Boeing despite the drawbacks associated with the Dreamliner program.

Boeing has also continued being at the forefront seat by supporting China’s evolving aircraft financing and leasing fraternity (Downey, 2009). As China anticipates to convert its intellectual and capital resources into profit avenues in jetliner funding, Boeing Capital Corporation (BCC) continues to share its skills and knowledge for purposes of mutual benefit. The BCC financing team based in Asia has worked to lure Chinese bankers to finance regional events. With the support of China, executives have traveled to Seattle to be taught the intricacies associated with airline planning and leasing of aircraft.

In the past years, Boeing has been involved in the active introduction of airlines that are non-Chinese to domestic bankers aiming foreign investments. The BCC president took a step and signed cooperative contracts with four of China’s leading banks that work in the aviation industry. Boeing’s history with China and the extending links with the Chinese airlines, partners in the manufacturing sector and financial entities entitle and provide Boeing with a solid foundation from which to build. However, the intensified competition in China means that Boeing cannot rely solely on its previous success experiences. Thus, Boeing has to continue expanding its role both as a customer and a supplier in China.

The Chinese suppliers are an essential part of Boeing’s aircraft production. China’s aerospace firms produce parts of Boeing’s new airplanes, for instance, the 787 Dreamliner and the 747-8 through the role of China as a supplier are not new. Following Boeing’s sale of its first airplanes in the 1970s, China has become an essential supplier for Boeing’s planes (Jiang, 2016).

Currently, more than 5500 jetliners from Boeing which accounts for more than 60 percent of jetliners operating across the world are made of parts from the Chinese manufacturers (Downey, 2009).

For instance, the 737 considered as the Next-Generation, Shanghai Aviation manufacturing corporation is tasked with making its horizontal stabilizers, and vertical fins originate from Xi’an Aircraft International Corporation. For the 787 model, Chengdu is tasked with manufacturing composite rudders; Shenyang produces the 787 vertical fin that serves as the leading edge while the Hafei Aviation Corporation produces composite panels and parts. Chengdu produces ailerons and spoilers for the 747-8 model and Xi’an manufactures wing parts including the model’s inboard flaps which happen to be the most significant piece of aircraft structure purchased by Boeing from China.

Also, Boeing has a share in some joint ventures such as Boeing Tianjin Composite company responsible for producing aircraft parts (Swanson, 2015). The partnerships developed by Boeing are strategically developed for purposes of establishing long-term benefits for all parties at stake. The company works on assignments that assist Chinese partners to benefit from the technical and manufacturing experience necessary for enabling the production of aviation products that have superior value and of good quality. The Boeing Tianjin Composites is undergoing an expansion that is expected to amount more than $21 million and has a long list of clients with the inclusion of Boeing (Downey, 2009).

The hiring of Steven Jiang who has been valuable as an employee of Boeing China and his experience transcends many years having worked in the aerospace industry. He has been identified as the most knowledgeable person in Chinese culture and business operations (Bhasin, 2017). Jiang as a senior specialist provides an essential link in giving technical assistance to airline personnel in China and also the Civil Aviation Administration of China. Jiang played a critical role in leading Boeing team that was tasked with evaluating air carriers of China on how they maintain mature planes.

Generally, Boeing has employed 150 employees in China and has more than 6000 workers employed in joint ventures. The numbers are still growing according to Wang, the president of Boeing in China. Boeing has established an office in Beijing which serves the human resource staff and programs to handle ethics, campus relations, and technology. The communications and international global corporate citizenship programs have proliferated. Boeing according to Wang has not only grown regarding some individuals but also in the multiplicity of functions. The most significant thing is that the company has managed to develop domestic employees more than the expatriates thus the Boeing in China experiences good local leadership regionally.

Conclusion

Boeing has continued resisting the footsteps of Airbus and is now establishing its very first offshore unit in China. However, there was no concrete decision made on the location and the time frame required to complete the B737 completion center following a billion order for more than 300 Boeing airplanes (Downey, 2009). It is evident that both Boeing and Airbus have prioritized China as the largest market and this is crucial to both companies in predicting and determining their market share in China. Thus, having assembly lines in China is the only powerful tool that can be used to convince the Chinese government to give orders.

Joint ventures for production purposes are encouraged by the Chinese government due to their ability to transform and making upgrades to the aviation workforce and compete with other Western makers and the very Comac and Avic. Light aircraft manufacturers from the US such as Cessna and Embraer a Brazilian corporate jet manufacturer continue enjoying leading ranks in China in the market following their initiatives of manufacturing planes in China with Avic firms.

Thus, China’s market for airplanes particularly in the field of private jets is still fresh and should be exploited because the number of billionaires that require planes is significant. However, impediments by the military have been affecting the private jet industry for ages though of late some provisions seem to streamline the private jet industry and in the future in China. Boeing has a market that it should it exploit provided that it remains relevant through innovation and creativity programs to meet the needs of the market. For instance, customization of planes to match the needs of the clients could make Boeing continue dominating a large share of China’s markets. However, there are other competitors in the airline industry all striving to manufacture quality planes with the art of state facilities.

References

Anselmo, J. & Mecham, M., 2011. Boeing And Airbus Views Of China Far Apart. [Online]
Available at: https://aviationweek.com/awin/boeing-and-airbus-views-china-far-apart
[Accessed 2 October 2018].

Bhasin, H., 2017. Marketing Strategy of Boeing – Boeing Marketing Strategy. [Online]
Available at: https://www.marketing91.com/marketing-strategy-boeing/
[Accessed 17 December 2018].

Clark, G., 2018. China’s Jet Challenge. [Online]
Available at: https://www.bloomberg.com/quicktake/china-s-jet-challenge
[Accessed 10 October 2018].

Downey, T., 2009. Boeing in China. Boeing Frontier, 8(6), pp. 3-57.

Jiang, S., 2016. Airbus, Boeing in new battle for China market share. [Online]
Available at: https://www.scmp.com/business/companies/article/1919491/airbus-boeing-new-battle-china-market-share
[Accessed 2 October 2018].

Swanson, A., 2015. China offers huge rewards for U.S. companies like Boeing. But it could also take that business away.. [Online]
Available at: https://www.washingtonpost.com/news/wonk/wp/2015/09/23/china-offers-huge-rewards-for-u-s-companies-like-boeing-but-it-could-also-take-away-their-business/?noredirect=on&utm_term=.e3baacb0fe4c
[Accessed 23 October 2018].

Thompson, L., 2015. Boeing To Build Its First Offshore Plane Factory In China As Ex-Im Bank Withers. [Online]
Available at: https://www.forbes.com/sites/lorenthompson/2015/09/23/boeing-to-build-its-first-offshore-plane-factory-in-china-as-ex-im-bank-withers/#35626ed97820
[Accessed 2 October 2018].

Tieman, R., 2017. Supersize me! Boeing and Airbus report higher sales private jets. [Online]
Available at: https://www.ft.com/content/31a341d8-c567-11e7-b30e-a7c1c7c13aab
[Accessed 2 October 2018].