China has been slowly returning the Boeing 737 MAX to service. New deliveries could resume shortly.
September was a big month for relations between China and the U.S.: Apple shares dropped 4% after the Chinese government told state officials not to bring their iPhones to the office; Taiwan’s defense ministry reported 103 Chinese military aircraft and six vessels in the Taiwan Strait; U.S. National Security Advisor Jake Sullivan met Chinese Foreign Minister Wang Yi on the island of Malta, discussing foreign policy “red lines” and exploring potential common ground for November’s Asia-Pacific Economic Cooperation summit meeting between Presidents Xi Jinping and Joe Biden.
On a positive note, communication lines between the U.S. and China remain open for the time being.
In aviation, China has been the industry’s biggest growth market for decades. As the country developed into the world’s workbench across a wide variety of business sectors, so grew its airlines. Now the Big Three in the U.S.—American Airlines, Delta Air Lines and United Airlines—and the Big Three in Europe—Lufthansa Group, Air France-KLM and International Airlines Group—have been joined by the Big Three in Asia—China Eastern Airlines, China Southern Airlines and Air China. At peak times, up to a quarter of Western aircraft production went to China. Longtime industry heavyweights, such as Cathay Pacific and Singapore Airlines, have been overshadowed by their peers.
While headlines about heightened geopolitical tensions are common, others tell of China’s economic troubles: lower economic growth, high youth unemployment and the late and slow recovery from the COVID-19 pandemic. What will China’s role be in the future of commercial aviation? Will the country’s airlines become a major factor again for Airbus’ and Boeing’s production planning in support of Chinese growth ambitions? And will suppliers continue to use the country as a lower-cost base for component manufacturing?
“China will become a normal big market like the U.S.,” says Andrea Luebke, senior vice president for corporate strategy at MTU Aero Engines. “We expect China to make up 18-22% of the world market, on a stable level.” Adam Pilarski, senior vice president at consultancy Avitas and a China expert, concurs: “China will not disappear as an economic powerhouse.” He says it is only a matter of time until the airlines return to making major orders, including for Boeing aircraft.
The country has been developing into a major aviation market since the early 1970s. Pilarski notes that domestic traffic grew twentyfold from 1972 to 1985, and international traffic was up 200 times in the same period. And while annual growth rates of well above 20% for domestic aviation began slowly decreasing later, the sector still expanded by double-digit percentages until the COVID-19 pandemic. In 2019, China counted 660 million passengers, second in the world only to the U.S. (1.1 billion).
ECONOMIC WOES
More recently, China has experienced economic woes not previously seen. But Pilarski contends that the slowdown has been “unavoidable.” The country’s period of very fast growth lasted much longer than in other Asian economies, such as Japan, Singapore, South Korea or Taiwan. “They all managed to do it. China managed to do it for a very long time,” he says. The slowdown, however, is about more than high growth rates naturally coming down over time. “The West realized it has been outsourcing too much to countries like China. The trend against outsourcing will affect China, and China is moving the same way for its own reasons,” Pilarski says. “The outcome will be that the economy will grow much less. It is fairly straightforward.”
In spite of the issues affecting the economy at large, in their domestic system Chinese airlines are operating significantly above 2019 levels. In July, traffic was also 72% above last year in terms of revenue passenger kilometers (RPK), according to Aviation Week Network’s CAPA – Centre for Aviation data. Chinese airlines carried 59 million passengers on domestic routes, compared to 51.6 million four years earlier. The global picture is different: 3.3 million international passengers flew to and from China in July, about half of the 6.6 million counted in July 2019.
The aircraft orderbooks at Airbus and Boeing do not seem to reflect the size of the market. China Eastern, China Southern and Air China have a combined order backlog of 365 aircraft with the two Western manufacturers. Compare that to India, seen by many as the next big thing in aviation: The Chinese orders represent little more than one-third of the commitment of IndiGo alone for Airbus A320neo--family aircraft and three-quarters the size of the latest Air India order.
In fact, Boeing recently reallocated 55 737 MAXs to Air India originally destined for China. According to the Aviation Week Network Fleet Discovery database, an order for 83 MAXs remains, and there are signs that deliveries of the type to China could resume shortly.
Even taking into account Chinese lessors, the numbers are not impressive (see chart): Boeing has a backlog of 494 aircraft on order by Chinese airlines and lessors; Airbus has 452. Combined, that is fewer than the 1,077 commitments on record for the Comac ARJ21 and C919.