Boeing has been impacted by the on-going trade war initiated by Donald Trump and has begun to return aircraft that Chinese airlines were prohibited from accepting back to the United States. It appears that 10 737 MAX jets ordered by Chinese carriers will not be taken up, and Boeing has begun the process of returning them to the United States.
Returning Aircraft Not Taken Up by Chinese Carriers
The first aircraft being returned was destined for Xiamen Air, a 737 MAX 8 that was moved to Boeing’s Chinese completion facility in Zhoushan. The aircraft returned to Seattle after refueling stops in Guam and Hawaii en-route for the 5,000 plus mile journey.
The trade war with China currently has US tariffs of 245% on Chinese goods, and China with retaliatory tariffs of 125% on US made goods. Clearly, with tariffs that high, no airline will take up an order given that the aircraft would cost more than double normal prices. Complaints have been lodged with the World Trade Organization, but resolution of those cases often takes years for adjudication.
Boing shipped 10 aircraft to China in March and April that are unlikely to be taken up, and will likely be quickly returned from Boeing’s completion and delivery facility in Zhoushan. Reports indicated that 3 additional aircraft at the facility were being prepped for a return to the United States after the airlines refused to take delivery.
In related Boeing news with China, China Southern airlines has cancelled earlier plans to sell its entire Boeing 787-8 fleet. That sale has now been postponed to May, and could be further extended depending on market conditions for used aircraft. With traffic dropping in many regions impacting airlines, that market value for aircraft appear to be in flux as the changing economic policies in the US make it difficult for airlines to plan.
While Boeing long-term forecasts should Chinese demand to be about 20% of the global market, its backlog shows only 2% of undelivered orders from China. It appears that China has been steering away from Boeing since the 737 MAX crashes, reinforced by the MAX 9 quality escape incident last year. The impact on Boeing in the short-term will be minimal, but over the longer-term may indicate a chilled US-China trade relationship.
Employees Still Not Convinced of Cultural Change
Kelly Ortberg, Boeing’s CEO, released the results of an internal survey this week, and the results were brutal. Boeing employees don’t trust senior leadership, and don’t believe their contributions are recognized or valued.
The results of the survey showed that employee’s pride in the company dropped from 91% in 2013 to only 67% in this year’s survey. The survey also indicated that less than half of employees were confident in senior leadership’s ability to make decisions, communicate direction and respond to concerns.
A link to a story that first appeared in the Seattle Times, but without a paywall, can be found here. Boeing clearly has additional work to do to change its culture for the better, which as Kelly Ortberg indicated when taking his position, was not something that could be quickly accomplished. Â
The Bottom Line:
The Chinese market has been moving away from Boeing, and will likely continue to do so for the foreseeable future. This represents 20% of the market inaccessible to the company, and it will likely change its marketing focus accordingly. Taking aircraft back is never easy, and it is expensive to convert aircraft from one airline configuration to another. Nonetheless, in today’s environment of sever year backlogs, that is doable for Boeing.
The cultural challenge is a long-term issue, and Kelly Ortberg’s leadership is bringing hope, but at the same time an “believe it when I see it” attitude at the company. It took twenty plus years of GE style management to break employee trust, and may take that long to regain it. Let’s hope negative attitudes have reach their nadir and will now move in the right direction.
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