US-China trade war could derail Boeing mega-deal talks

Boeing, under pressure over the worldwide grounding of its 737 Max plane, is the largest US exporter and the deal would help reduce its home country's trade deficit with China.
Boeing, under pressure over the worldwide grounding of its 737 Max plane, is the largest US exporter and the deal would help reduce its home country's trade deficit with China.PHOTO: REUTERS

Chinese airlines weigh purchase of Dreamliner, new 777X jets amid Sino-US spat

CHICAGO • Boeing has been negotiating one of the largest orders of wide-body jetliners with Chinese airlines, even as tensions between Washington and Beijing escalate.

The discussions centre on 100 twin-aisle jets comprising 787 Dreamliners and 777X planes, the newest long-range aircraft in Boeing's line-up, according to sources familiar with the talks.

Negotiations have focused, in particular, on the 777-9 variant, the planemaker's costliest jet, with a US$442.2 million (S$603 million) sticker price, ahead of the model's expected first flight later this month.

No deal is imminent, the sources warned, 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 the discussions, as the tit-for-tat fight between the United States and China intensifies.

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 US President Donald Trump blocking telecommunications giant Huawei from buying US technology, and looking to extend the ban to five Chinese video-surveillance firms.

 
 

Beijing vowed to retaliate, issuing a travel warning for the US 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.

Still, the airplane negotiations underscore the overlapping interests between the two countries in aviation. Boeing, under pressure over the worldwide grounding of its 737 Max plane, is the largest US exporter; the deal would help reduce its home country's trade deficit with China. The potential order would be worth more than US$30 billion before customary discounts, depending on the mix of aircraft.

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 planemaker, but the first locally developed wide-body jet is at least eight years away.

"China's not going to poke themselves in the eye. I don't see them cancelling Boeing airplanes," said Associate Professor David Pritchard, an aerospace researcher for the State University of New York, Empire State College.

Instead, China over time will probably shift from its strategy of carefully dividing orders between Airbus and Boeing.

The new planes would help replace an earlier generation of 777 jetliners. Boeing has sold 101 of those aircraft to Chinese airlines.

While the 777-9 would make up a significant portion of the deal, there is also interest in the smaller 777-8, whose size is comparable to the 777-300ER.

 
 

Boeing has long predicted healthy sales for the 777X in China, where airlines have yet to order the hulking model, the first twin-engine aircraft designed to haul more than 400 travellers.

But the timing of the plane's 2020 commercial debut is uncertain amid a controversy over the US 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 its revenues.

Despite the foreboding trade backdrop, the Chicago-based firm is still working to reach a commercial agreement that its customers in China can take to the government for approval.

 
A version of this article appeared in the print edition of The Straits Times on June 07, 2019, with the headline 'Trade war could derail Boeing mega-deal talks'. Print Edition | Subscribe