As Boeing and Airbus struggle with fake parts and order backlogs, China's COMAC scoops up new orders
Summary:
Industry insiders expect that China will be competitive in commercial aircraft by 2030, taking market share from Boeing and Airbus.
Supply chain and labor issues represent severe challenges to both companies, as they struggle to keep up with booming industry demand.
COMAC, a Chinese manufacturer of passenger jets, is picking up high volumes of business from carriers in Mainland China, which will be the world's largest market over the next 20 years.
High hurdles remain for COMAC, most notably involving questions as to how quickly the company can scale up to meet production demands of international carriers.
Report:
Among the key industries that are going to be crucial for national economies in the 21st century, China is still trying to catch up in only one of them, in Commercial Aviation, which is the manufacturing of passenger aircraft. In all the others, China has either caught up, or dominates them. In the world’s ugliest graph here from Bloomberg, they point out that China will be competitive in commercial aviation by 2030:
This industry is currently a duopoly, meaning it is served by two companies, a duo. Airbus and Boeing build almost all of the world’s passenger jets. COMAC is a Chinese aircraft manufacturer, and they’re just starting to win major orders. So Bloomberg and industry insiders believe that COMAC is going to be a major player, competitive against Boeing and Airbus by 2030.
There is not a single news headline from those companies which is confidence-inspiring. At Boeing, the bad news is nonstop. GE Aerospace is Boeing’s supplier of aircraft engines, and their CEO is trying to fix the supply problems at 15 different suppliers across the supply chain on the engines that go on Boeing’s planes. It’s resulting in new headaches for Boeing, and for Boeing’s customers, the airlines. GE has 550 engineers working inside those 15 companies to fix the problems, once they figure out what the problems even are
GE’s CEO either doesn’t know, or doesn’t want to say, how long it will be before they can fix the supply chains for plane engines, and points out that they don’t merely build the engine, but also service them for decades, with parts and maintenance. That would be a challenge anyway, but Boeing and Airbus just learned of another problem, which is that a lot of the parts they were using to build engines were fake. Airlines in China, the US and Europe had to ground aircraft and replace the suspect parts, costing them millions in lost revenues and repair costs.
Bloomberg began reporting on that issue in 2023, and last month reported that Boeing and a group of airlines are now trying to reform the acquisition processes they use in their supply chains.
Parts is a problem, fake parts is another problem, and Boeing and Airbus cannot keep up with the demand for new jets. They can’t increase production, because they don’t have enough parts, and they don’t have enough people. When this article was published the machinists were on strike at Boeing, and Boeing can’t build the 737, which is their biggest moneymaker.
The strike is now over, but Boeing is now laying off employees, and they’re cutting 17,000 jobs. They simply have to get production of the 737 going again, and the company had to raise $24 billion in secondary offerings just to keep their bond ratings from being downgraded to junk. The 737 faced severe safety issues before, including fatal crashes, then this year a door flew off a plane in-flight, the CEO quit, federal regulators are investigating the safety problems, then the strike, then the credit downgrades, now the layoffs, and throughout all that Boeing’s supply chains either can’t get enough parts, and a lot of the parts they do find turn out to be fakes.
So there’s no end to the problems at Boeing. You might think that would be great for Airbus, and they would be picking up a lot of business that would be going to Boeing. But they can’t supply the customers they’ve already got. The IATA is the International Air Transport Association, and they represent airlines. They say that the delivery delays are massively frustrating, and not getting better. As a result, airlines are cutting flight schedules and revising down their own forecasts for passengers and revenues. Airline CEO’s are reporting that the problem seems to be long-lasting—they will persist for years.
What’s more, the European airlines note that they already are struggling to compete against Chinese carriers who are allowed to overfly Russia, and the European airlines cannot, which puts them at an extreme economic disadvantage.
The CEO of GE Aerospace was asked about COMAC, which is the Chinese planemaker that is trying to break in to this space. He says “not to bet against COMAC.” They’ve already sold 300 C919’s, which is a direct competitor to the Boeing 737, and those 300 orders is just the beginning, more and more airlines will be looking to COMAC. COMAC does face major challenges—it’s no small thing to go from building a hundred planes a year, to building a hundred planes a month. But he believes that COMAC already understands that.
COMAC just rang up big new orders, and this time for their wide-body model, the C929. The 929 is a wide-body aircraft, which will compete on long-haul routes with the Airbus A330 and the Boeing 787. COMAC also received buy orders for the C919, which is equivalent to the Boeing 737 and the ARJ 21, used on smaller and regional routes. Hainan Airlines bought 60 of the 919’s and 40 of the 909’s, an airline in Guizhou ordered 30 909’s, and these will all be delivered over the next 7 years, through 2032.
COMAC is winning orders from Mainland China carriers, but they’re still trying to earn business from major international carriers, outside China. But remember what the European airlines were complaining about: Chinese airlines are already enjoy higher operating profit margins than other carriers, because they can fly over Russia, and their crew costs are lower. Now those same Chinese carriers are buying less expensive planes, built by COMAC.
Another issue is this one: the air travel industry is going to grow much faster in China, than in other markets. Over the next 20 years, China’s air traffic will grow at 5.3% per year, compared to just 3.75% across the global industry. China will need over 20% of the world’s planes by 2043, making it the biggest aircraft market.
COMAC is going to have that market, anyway. COMAC will be the first supplier to all these Chinese airlines. But looking at the rest of the world, we have to like COMAC’s chances to take big markets everywhere else too. Airbus and Boeing can’t deliver planes, right now, and the airlines know their delivery problems will last for years. We still don’t know, yet, if COMAC will be able to build a thousand, two thousand planes a year. But we should expect them to sell all the planes that they can build. If you’re an airline who can’t get new planes, you can’t add new routes or expand, meanwhile you’re watching Chinese airlines as they take over. If Chinese airlines can get new planes and you can’t, you’ll be out of business. To those airlines outside China, they may see COMAC as the supplier of last resort, but at least they’ll have planes and parts for them.
Resources and links:
Nikkei, China's COMAC maps out future, armed with fresh mainland jet orders https://asia.nikkei.com/Business/Aerospace-Defense-Industries/China-s-COMAC-maps-out-future-armed-with-fresh-mainland-jet-orders
Bloomberg, GE Aerospace Says Shortages Involve Over a Dozen Suppliers https://www.bloomberg.com/news/articles/2024-10-28/ge-aerospace-says-over-a-dozen-suppliers-at-fault-for-shortages
Bloomberg, Fake Jet-Engine Parts Case Prompts Call for Supply Chain Reforms https://www.bloomberg.com/news/articles/2024-10-09/fake-jet-engine-parts-case-prompts-call-for-supply-chain-reforms
Reuters, Airbus, Boeing aircraft delivery delays not improving, IATA head says https://www.reuters.com/business/aerospace-defense/airbus-boeing-aircraft-delivery-delays-not-improving-iata-head-says-2024-10-16/
Reuters, Boeing starts issuing layoff notices as planemaker trims 10% of workforce https://www.reuters.com/business/aerospace-defense/boeing-starts-issuing-layoff-notices-starting-this-week-2024-11-13/
Infographic, the Boeing/Airbus backlog https://www.appeconomyinsights.com/p/boeing-vs-airbus
Airline duopoly to monopoly – is Airbus forging ahead? https://econfix.wordpress.com/2024/01/31/airline-duopoly-to-monopoly-are-airbus-forging-ahead/
Hate to say this but Boeing asked for those problems by deciding short term profits were more important than building a safe and reliable aircraft. Sort of like electing a wannabe dictator with an insane agenda because the price of eggs is high.