News:

While the Boeing 737 MAX has been cleared to return to flight in the US, each international jurisdiction must make its own determination on the safety of the aircraft. Brazil has already approved the airplane, and GOL was the first airline to return the 737 MAX back into service. The situation in China, however, an important market for Boeing, may be more difficult and caught up in international geopolitics.

The South China Morning Post is reporting that the return of the MAX in China may be tied as much to broader US-China trade frictions than only aircraft safety. That brings a different dynamic to the once chummy and reciprocal international regulatory system for aircraft.

China’s regulator, CAAC, was the first to shut down 737 MAX operations and may be among the last approving the return of the aircraft. Unlike the old days, when international reciprocity among agencies made certification effectively a “fee and rubber stamp” process, the incompetence of the FAA in the certification of the 737 MAX has changed the regulatory landscape. International regulators are no longer accepting the FAA’s assessments at face value and are performing their own investigations into aircraft safety.

Analysis:

China understands the importance of aircraft to the US balance of trade, and has established a goal to produce its own aircraft domestically. The first Chinese built aircraft, the ARJ-21 regional aircraft, is already in operation. The trunk-liner aimed at competing with the Boeing MAX and A320neo, the C919, has passed the Type Inspection Authorization phase of development, meaning that the design has been finalized and that the airplane is moving through flight testing to validate assumptions and performance. The C919 is flying a series of test aircraft and should be certified by the end of next year.

US trade restrictions, and a recent declaration by the US that COMAC is military-related, could potentially prevent a number of US and international suppliers from providing components that have been designed into the aircraft, including the LEAP engines from CFM International, a SAFRAN-GE joint venture.

Should those restrictions go into place, COMAC would need to replace a number of international suppliers with domestic ones, which could take several years and further delay the program. That would certainly be impetus for a trade retaliation against Boeing. Currently, with the 737 MAX still grounded and unable to fly in Chinese airspace, the easiest action for China would be to delay its return to service substantially.

Insight:

The transition of administrations from Trump to Biden in the US could potentially loosen trade relationships with China and result in potential restrictions being lifted from COMAC’s reliance on western components and partners. That in turn might cause the Chinese regulators to more rapidly approve the return of service for the 737 MAX.

But once a company lands on a list of military-affiliated companies, it tends to be difficult to remove them, regardless of which political party is in power. These lists tend to become institutionalized and tend to have a life of their own irrespective of the politics. If the restrictions on COMAC come into play, we would expect that China would reverse engineer any western components and establish its own domestic supply chain for the airplane. We would also expect that China would also not approve the return to service for the MAX for years, and choose aircraft from Airbus, which has a final assembly line in China as an element of its global strategy.

Boeing’s fate for the 737 MAX in China may be more dependent on what happens in Washington and Beijing rather than the technical aspects of the airplane. Unfortunately, those actions are out of Boeing’s control, but could account for 20% of MAX order book. Just when there is light at the end of the tunnel in Seattle, it could darken again.  

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President AirInsight Group LLC

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