Boeing Struggles for Footing as China’s State-Backed Jet Manufacturer Looks to Challenge Aviation Duopoly

Boeing’s latest 737 MAX debacle has led to the sacking of an executive who was installed to help the troubled planemaker recover from the disasters of 2018-2019. Continually suppressed output and quality control issues are afflicting Boeing again, just as it has just managed to restart a set of delayed deliveries to China for the first time in years. China was the first country to ground the 737 MAX in 2019 and one of the last to recertify it. Boeing expects China to account for a fifth of all global jet demand through 2042, but risks losing some of its business in the country as a domestic state-backed challenger is emerging. 

The Commercial Aircraft Corporation of China (COMAC) showcased its C919 narrowbody jet at the Singapore Air Show this week. Boeing did not display any of its commercial aircraft at the latest iteration of the event, but COMAC secured a 40-plane order from Tibet Airlines and flew its C919 outside of China for the first time. COMAC’s upstaging of Airbus and Boeing is likely a launchpad for it to begin selling its aircraft to Asian airlines outside of China, where the company has already locked up more than 1,000 orders. If COMAC’s jets can achieve international certifications and reduce reliance on western supply chains, it could take a bite out of the long-standing duopoly in commercial airline manufacturing.

Related Stocks: The Boeing Company (BA), Airbus SE (EADSY)

Boeing has spent years trying to overcome seemingly nonstop safety issues, legal proceedings, and manufacturing disruptions impacting Boeing’s critical 737 MAX line, but the latest malfunction has once again suppressed the company’s share price and capped its output below 2018 levels. It has now cost an executive at the head of the MAX program, Ed Clark, his job. Clark was dismissed from his position yesterday, nearly three years after taking over Boeing’s embattled Renton, Washington plant in 2021. Renewed scrutiny of Boeing stems from a mid-air blowout of a panel aboard Alaska Airlines Flight 1282 on January 5. A door plug, meant to seal unused exits on certain flight configurations where they’re not in use, apparently fell off of an almost brand-new 737 MAX 9 jet in flight, leaving a gaping hole in the plane’s fuselage. This plane was manufactured in the Renton facility and, according to the results of an NTSB investigation, Boeing appears to have been responsible for the mis-installation of the door plug.

Problems with the design of the plane began to emerge to the public in 2018-2019 when two Boeing 737 MAX jets crashed within a 5-month span, resulting in the death of all 346 passengers and airline crew on board the flights. This set off a worldwide grounding of Boeing 737 MAX jets, which lasted much longer than Boeing originally predicted. MRP was quick to recognize the severity of the situation, despite Boeing’s attempts to downplay their planes’ issues. When no progress on re-certification was present within three months of the grounding, we expressed skepticism about the simplicity of the repairs that would be needed, noting that, in addition to software problems, almost 150 parts inside the wings of 312 Boeing 737 jets were potentially defective and had to be replaced. On June 4, 2019, we initiated SHORT Aviation and Airlines themes (closed on January 8, 2020 and March 30, 2020, respectively), largely focused on Boeing and the fallout that would be felt by suppliers and commercial airline operators. It would take 20 months before the 737 MAX could be re-certified in the US in November 2020.

Total direct costs to Boeing as a result of the MAX disasters were equivalent to more than $20 billion, but external costs – in the form of evaporated trust and heightened scrutiny by business partners and regulators – are still accruing to this day. As of yesterday’s close, the aviation manufacturer’s share price remained more than -40% below its price at the start of June 2019.

Boeing’s business has suffered particular setbacks in Asia. China was the first nation to suspend the airworthiness of 737 MAX jets in March 2019 and one of the last to re-certify the plane in early 2023. The long-lived grounding of Boeing’s most popular jet in China strained the company’s relationship with local airlines. In 2022, MRP noted that China Southern Airlines – Boeing’s biggest customer in China – had…