Commercial Aircraft Manufacturing Rivalry has begun
Aayush Mohanty, Research Associate, VIF

The last two years have seen the U.S-China rivalry ramping up, threatening to engulf the world in a new Cold War. The new Cold War would not be the same as before, based on ideology, but, who has better technology and is equipped to deal with global issues effectively. In the last few years, U.S supremacy in technology has seen fierce competition from Chinese tech companies. As COVID-19 ravages the world economy, especially tourism, specifically air travel, we see China’s economy on the rise again, while other big economies are struggling. An economic rebound in China has led to increased domestic travel.

China has already achieved the goal to be the biggest aviation market in May 2020, a feat which it was supposed to achieve in 2024 by beating the U.S. COVID-19’s effects on air travel have been disastrous for airlines and the tourism sector; more importantly, the aircraft manufacturers, which leads to important questions that need to be answered. How are the U.S and European aircraft manufacturers coping? What are the Chinese plans for commercial aircraft manufacturing?

Boeing and Airbus Dominant but Shaky

Boeing (U.S.) and Airbus (Europe) are top rivals and the first commercial aircraft choices for most of the airlines in the world. India’s airline companies, including the national carrier, Air India, have aircraft in their fleets manufactured by them. Unfortunately, the last few years have seen troubling times for both of them. The two heavyweights of the commercial aircraft manufacturing industry have suffered significant losses.

Boeing

Boeing’s woes started in October 2018, when one of its latest models, 737-Max, crashed with passengers onboard Lion Air, an Indonesian low-cost airline. Boeing assured its customers and the civil aviation regulatory authorities that the aircraft is safe to fly. Within five months of the first crash, another 737-Max was reported to have crashed again, with passengers onboard, operated by Ethiopian Airlines. Immediately after the second crash, the Chinese Civil Aviation Authority grounded the aircraft. The European Union, Indonesia, India, and Australia civil aviation followed suit. The Federal Aviation Authority (FAA) in the U.S. three days after the second crash decided to ground all 737 Max aircraft.1

Boeing’s 737 Max mishaps saw debates between the Democrats and the Republicans, with the latter defending the process for evaluating aircraft. Boeing’s chairman then, Dennis Muilenberg, was not in favour of changing the evaluation process in debate as it had helped reduce potential crashes by 95 per cent in the last 20 years. The subsequent months after the second crash in 2019 saw Boeing making changes in the upper management, prompting Muilenberg to step down before Christmas in 2019, and by February 2020, Boeing saw its third CEO taking over in the last five years. The beginning of 2020 saw woes for the aircraft manufacturing giant as they released communications between employees, indicating unhappiness and haste in manufacturing the aircraft. Financially, Boeing lost more than USD 600 Million its first since on an annual basis since 1997. The company was able to secure a USD 13 Billion in financing to avoid a cash crunch.2

Staff members of the Transportation Committee in the U.S. were critical of 737 Max’s evaluation process. They blamed failed government oversight, lack of action, and design flaws of the aircraft, which led to two deadly crashes claiming 346 lives in five months. The committee's claims have not been taken kindly by the FAA and Boeing, who say that the aircraft complied with the existing evaluation process. A bill with bipartisan support would give more teeth to the FAA. The bill gives FAA to pick on employees who approve the safety standards and more scrutiny for aircrafts, especially those that have significant changes over the previous model. Boeing hopes that the new software, going through intense scrutiny and regular tests by civil aviation regulatory authorities worldwide, will be successful and safe to fly by early-2021.3

The bill would also approve USD 30 Million more annually for the FAA to strengthen its engineering and technical teams. An internal survey also revealed that FAA employees working in the safety branch believe that there are severe issues in dealing with big companies like Boeing, which are being covered through the House legislation. The Senate bill, which also has bipartisan support, gives more freedom to Boeing’s government overseers. Although the vote that was due in September was cancelled for reasons unknown, the proposal is under review. 4

Airbus

Airbus and Boeing dominate 99 per cent of the commercial aircraft market together. Boeing’s issues with regulators worldwide have not been beneficial to Airbus due to corruption charges, trade tensions, and the world economy slowing down. Early this year, authorities in the UK, France, and the U.S. concluded their investigation into Airbus’s practices, which revealed bribery and corruption. The company has settled on a deal ( USD 4 Billion fine to European and U.S. regulators) to settle the charges, including landing deals with airlines based out of various countries like China, Malaysia, Taiwan, and so on. 5

The European giant is also facing issues with its engine suppliers, mainly when it can produce only 700 Airbus A320 Neo’s when there is a backlog of more than 6,000 ordered by various airlines worldwide. Slashing production would have severe implications as cash flow is generated when the aircraft is delivered, not when the order is placed. The World Trade Organisation (WTO) in 2019 made it worse for Airbus as it allowed the U.S. to place tariffs on European aircraft and other goods, 15 years after the matter was brought to the premier multilateral trade institution for settlement.6 The global crackdown in travel has led to an estimated 30 per cent cut in output worldwide for aircraft compared to 2018 levels. As the backlog continues, and the future seems bleak due to the fear of “Strong oversupply,” both Airbus and Boeing seem to be in trouble as far as cash flow is concerned. At the time Airbus is dependent on completing its orders for the Chinese airlines as domestic travel has got back on track there. Airbus also has to consider shutting down production of its famed Airbus A380 Superjumbo jet to compensate for the losses.7

Airbus’s military aircraft program has also worsened its financial woes as it has lost 12 Billion Euros because of the problems surrounding A400M military transport aircraft. The German government also suspended export licenses to Saudi Arabia in March this year, leading to a loss of 221 Million Euros. However, Airbus did sell more aircraft than Boeing in 2019 as the latter faced cancellations while losing one of its biggest customers, Jet Airways in India. 8

Commercial Aircraft Manufacturing Corporation of China (COMAC)

COMAC’s ARJ21 commercial aircraft entered service in 2016. The pivotal year for the COMAC will be 2020, though, when it simultaneously delivered three of these jets to China’s most prominent airlines, namely, Eastern, China Southern, and Air China. Although, since its first delivery around half a decade ago, COMAC is yet to ramp up production for its product, with 378 orders, they have done well, but the customers are almost all Chinese companies (20 are for General Electronics Aircraft Leasing Division). COMAC’s aircraft a direct competitor to Airbus and Boeing is the C919, the smaller single-aisle commercial aircraft category, which is also the most extensive industry segment. COMAC’s jets are not on the same level as the seasoned players of the industry. The products are inferior compared to its competitors. But, in the future, one can expect competitive pricing from the Chinese SOE and depending on China’s state-run economy to gain funding and get orders.9

COMAC’s C919 is an integral part of the “Made in China 2025” blueprint but is running five years behind schedule as it is struggling with a host of technical issues that impact its test flights. Although delays are expected in aerospace programs, COMAC’s attempts to make their product commercially viable will take time. The Chinese SOE is aiming to get certification in 2021 and delivery at the same time. The last publicly stated goal to achieve the target was by the end of 2020. But miscalculations about the various facets of the C919 have exposed the lack of experience in designing and building a commercial aircraft (issues include engine load, gearbox, oil leaks, and cracks in various parts of the aircraft after a test flight). Over the years, U.S Federal prosecutors have charged a group of Chinese intelligence officers breaking into major aerospace manufacturers' networks to steal sensitive data, which will help China build its jet engines. 10

China is determined to reduce its dependence on western manufacturers while encouraging home-grown companies to sell their domestic and international products. Homegrown capacity for aircraft manufacturing is also an essential aspect of the “Made in China 2025” blueprint. To that end, the state-owned Commercial Aircraft Corporation of China (COMAC), established in 2008, in the last decade, has built two jets, namely the ARJ21 and the C919. At the time, only China’s aviation regulator has approved these aircraft to fly. One can expect developing countries in Africa, South America, and Asia to take an interest in China built commercial jets if the government there recognise Chinese certification.11

The Future of the Competition

Airbus estimated in 2012 that COMAC’s C919 could be a competition to the Airbus A320 by 2020. The assessment made almost a decade ago, fortunately for Airbus, has not been confirmed yet due to the technical delays mentioned in the previous section. Aviation rivalry between China and the West will intensify in the coming decade and beyond as COMAC wants to capture 33 per cent of the domestic market and 20 per cent of the international market by 2035. The driving force behind this ambitious plan to penetrate the domestic and international markets would be fuelled by the Chinese government’s plan to reduce dependence on western original equipment manufacturers (OEM) like Airbus and Boeing.12

In May 2020, reports came out from China that it has already started working on a long-haul product called CR929. The plans for CR929 are to be operational between 2025 and 2028 and have a range of 12,000 KM with the ability to carry 280 passengers aboard, directly competing with Boeing and Airbus long-haul segment of the industry. The CR929 is being co-developed by China’s COMAC and Russia’s United Aircraft Corporation.13 The collaboration between Russia and China is a clear indication of a new cold war, which is not based on ideology, but technology. Although fought on ideological lines, the previous Cold War saw intense technology rivalry, and Russia’s experience as the erstwhile Soviet Republic might come in to use.

Conclusion

China’s aspiration to be a superpower from a technological perspective is clear as far as the commercial aircraft industry is concerned. The industry is a part of the national strategy for growth. It might take a few decades as COMAC can still compete against the western OEM’s. But, technology is a cat and mouse game, the western OEM’s would forge ahead even with their current problems, but COMAC with state support does threaten to take away the Chinese aviation market and might undercut its competition. We are yet to see if the FAA, European Union Aviation Safety Agency (EASA), India’s Directorate General of Civil Aviation (DGCA) would recognise Chinese certification and whether the European, American, or Indian airlines would be willing to buy Chinese commercial aircraft.

The Trump administration, since 2018, has been looking to reduce the trade deficit with China while starting the process of “de-coupling.” Due to these changes, the Chinese government is now more motivated to make its SOE’s (COMAC in this case) competitive against western OEM’s in the years to come. Collaborating with Russia on these projects gives a clear indication that competition in technology will intensify, and China would put its weight behind any project that directly competes against western technology and products in the market. The smartphone industry is one such example, as well as the network gear industry.

References
  1. “Boeing 737 Max Timeline: From Best-Seller to Burden.” Fox Business, 27 Feb. 2020, www.foxbusiness.com/industrials/boeing-737-max-timeline.
  2. Ibid
  3. “US Congress Report Blasts Boeing and FAA over 737 Max Failures.” US & Canada News | Al Jazeera, Al Jazeera, 16 Sept. 2020, www.aljazeera.com/economy/2020/9/16/us-congress-report-blasts-boeing-and-faa-over-737-max-failures.
  4. Duncan, Ian. “House Bill Would Give FAA New Oversight Powers over Boeing after 737 Max Crashes.” The Washington Post, WP Company, 29 Sept. 2020, www.washingtonpost.com/local/trafficandcommuting/house-bill-would-give-faa-new-oversight-powers-over-boeing-after-737-max-crashes/2020/09/28/5193fdaa-01b6-11eb-b7ed-141dd88560ea_story.html.
  5. Frost, Natasha. “Boeing's Troubles Mean Airbus Should Be Soaring-Here's Why It Isn't.” Quartz, 5 Feb. 2020, qz.com/1796122/throughout-boeings-troubles-airbus-is-struggling-to-shine/.
  6. Ibid
  7. Hollinger, Peggy. Airbus Shores up Its Finances as Aircraft Demand Vanishes. Financial Times, 23 Mar. 2020, www.ft.com/content/35da9db0-6d11-11ea-9bca-bf503995cd6f.
  8. McHugh, David. “Airbus CEO Sees No Short-Term Benefit from Boeing MAX Woes.” Yahoo! Finance, 13 Feb. 2020, finance.yahoo.com/news/airbus-shows-loss-2019-due-081655139.html.
  9. Steinberg, Ethan. “Watch out, Boeing: China's Aerospace Giant Faces First Real Test as It Delivers Aircraft to Major Chinese Airlines.” The Points Guy, 4 July 2020, thepointsguy.com/news/comac-aircraft-delivery-to-major-chinese-airlines/.
  10. Qiu, Stella, and Tim Hepher. “China's Bid to Challenge Boeing and Airbus Falters.” Reuters, Thomson Reuters, 10 Jan. 2020, www.reuters.com/article/us-china-aviation-comac-insight-idUSKBN1Z905N.
  11. Harrison, Virginia. “Can China's Plane-Maker Take on Boeing and Airbus?” BBC News, BBC, 28 Apr. 2019, www.bbc.com/news/business-47689386.
  12. Pandey , B K. “C919 Vs Boeing & Airbus.” SP's Aviation - Civil Aviation, 2017, www.sps-aviation.com/story/?id=2061.
  13. Yi, Ding. “China Making Headway on Its First Long-Haul Jetliner: Reports.” Caixin Global - Latest Business and Financial News on China, U.S. Trade War and Negotiations, Breaking News, Headlines and Developments, 27 May 2020, www.caixinglobal.com/2020-05-27/china-making-headway-on-its-first-long-haul-jetliner-reports-101559470.html.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>


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