Potentially breaking news out of China as the Boeing vs Airbus trade war heats up!
Turns out, Airbus has been in secret negotiation with exclusive Boeing customer Xiamen Airlines to poach their business!
What is the story so far?
This explanation will be very simple, and we will skip over the major politics. We will have links to further reading throughout the article.
As you may have heard, President Trump has been involved in a trade war with China for the last few months, placing increasing tariffs on goods from China. In retaliation, China has been restricting their local companies from buying American goods. Whilst American made planes have not yet been tariffed, its one item in China’s back pocket they are waiting to use in the trade war.
Naturally, one American company is rather popular in China, Boeing.
Boeing, of course, loves China. They are currently engaged in a bitter industry battle with their major rival, Airbus, for control of the massive market. With a population of 1.3 Billion people and a huge growing middle class that is very keen to travel, China is easily the worlds best market for airlines.
In fact, Boeing knows this very well, predicting that 18% of the worlds airline fleet will be in China by 2037, and will require another 7,690 new airplanes over the next 20 years. Boeing currently sees about a billion dollars worth of business from China.
Thus both Airbus and Boeing aggressively court the various Chinese airlines. Below is a graph that shows the current market split (Source).
However, with these new tariffs, Boeing has become nervous that their planes are about to become a lot more expensive for Chinese customers. Airbus is not affected as it is a european company.
Thus, Airbus has chosen its time to strike. It’s weapon of choice? A longer range Airbus A321.
Last month, they flew out a large delegation to meet and greet various Airlines, including Xiamen Air, an exclusive Boeing customer for 30 years, to discuss how they could better their fleets.
“The discussions gained intensity in September when senior Airbus executives including Chief Executive Officer Tom Enders and incoming CEO Guillaume Faury visited China” – Bloomberg report.
What would be the deal between Xiamen Air and Airbus?
This would be a massive blow to Boeing, as Xiamen Air was a launch customer for the Boeing 737max jets (The competitor to the A320) last year. They also have a fleet of 171 Boeing jets, 25 on order and own two subsidiary airlines. Xiamen Air is owned itself by China Southern who operate a mixed fleet.
It is believed that Xiamen is reluctant to do the Airbus deal, as they prefer to keep a single company fleet as to keep maintenance costs low, but the current trade war situation has made them apprehensive about the future.
The potential Airbus – Xiamen deal is rumored to be a huge $18 Billion US. Previous deals would indicate this would be a staggering 180 A321 Neo narrow-body planes.
Neither Airbus or Xiamen have commented on the rumor, with only a Xiamen executive giving one sound bite.
“Boeing have been and are a great customer [Of Xiamen]”
– Boeing Vice President for Marketing Randy Tinseth
Whilst no confirmed sales have occurred yet, it is enough to spook the American giant.
What effect is this having on Boeing?
This news has made Boeing investors nervous, negating their recent share price gains (Shares fell around -0.9%). However, compared to YTD the shares are much higher.
Boeing is currently in a meeting with President Trump as of this article, specifically to discuss how they can prevent further losses and reduce costs by using more suppliers in the local domestic market.
They also recently won three defense contracts for the US military. However, commentators have mentioned that they underbid to ensure their victory against military contractor Lockheed Martin. Whilst this is not directly tied to their commercial airliner business, one has to wonder if they are preparing to pursue other revenue models.
What is next?
Any major deal would have to be approved by the Chinese National Development and Reform Commission, and so far they have not revealed that any discussions are taking place.
However, and this is where it gets juicy, on the 5th of November China will be hosting an import-export fair. Essentially a big expo where the government can parade all the new deals it has made with foreign countries, such as farming equipment, mining contracts and of course, airline purchases.
If they are going to sign a deal with Airbus, this is when it will happen. One day before the US midterm elections on November 6th.
“The timing of this will not be a coincidence, the Chinese are political in the way they announce deals, they use aircraft orders as a means of doing international politics.” – Sash Tusa, an analyst at Agency Partners in London
We will report more on this story as we receive the details.