Insight: Friday 24 July 2020: Can COMAC gain from the pandemic amidst a new “cold war”?

While Airbus and Boeing struggle with negative orders between them in the last three months, China’s COMAC is gaining strength with Chinese airlines. Since every order for a COMAC aircraft is one that Airbus and Boeing will not see, the threat of local production of regional and narrow-body aircraft in China has become more real as we look to the future.

China has planned self-sufficiency in aircraft for some time, with successive 5-year plans calling for increased emphasis on building commercial airliners. While China remains behind the west in aircraft technology, it is not as far behind as many believe, and the new C919

should be reasonably competitive with the A320neo and Boeing 737MAX, as it will be powered by the same CFM Leap engine family that powers the western alternatives when it is certified.

The ARJ-21 regional jet, which has been viewed as a “learning” airplane by those in the West, is nonetheless a design quite similar to the McDonnell Douglas DC-9 and is competitive with older model regional jets. The first ARJ-21s have now been delivered to Air China and China Southern, two of the major players in the Chinese airline market, and providing additional credibility to the brand.

No one is expecting COMAC to suddenly become a major international exporter of aircraft, or that their aircraft will sell well in the west. But China’s Belt and Road network of countries, including some states in Africa, could easily acquire these aircraft at a lower cost than competing western aircraft, perhaps trading them for raw materials. The near future, however, remains primarily domestic for COMAC, which is viewed similarly to Russian-produced airliners during the cold war period.

A key question is how strained trade relations will become between the United States and China. Embraer, who are exploring potential global partnerships after their deal with Boeing fell apart, is rightly concerned that the United States might move to block their participation in a potential joint venture with COMAC. Embraer has strong aircraft design talent and could speed the development and certification process for the forthcoming C919, as well as provide an international service and support network that could be a springboard for international sales. It is unlikely that the current administration in Washington would permit such a deal to move forward.

China is determined to succeed in aviation, and the ARJ-21, albeit with low production rates, has successfully entered service. The C919 is poised to follow, after a 15 year plus development program. Although the program has experienced multiple delays en route, the high priority for aviation by the Chinese government leaves no room for failure or turning back. COMAC will be a player.

Today, Chinese Airlines may be among the few that are looking at potential growth over the next couple of years, as the west is looking at a longer economic recovery from the pandemic. That could provide the opportunity for COMAC to generate orders beyond the 1.008 commitments it currently has and close the gap with Boeing and Airbus for new orders in China.

With Airbus currently having a facility in Tianjin building A320 family aircraft, we would expect Airbus to continue to have the confidence and support of the Chinese government. But with worsening relations between Beijing and Washington and only an interior completion facility from Boeing in place in China, it is likely that the 737 MAX will be the odd aircraft out. It will be interesting to see how the Chinese regulator CAAC reacts to the return of the MAX and approval by the FAA, as any delays could provide further clues about a potentially deteriorating trade climate.

China doesn’t yet have a wide-body aircraft but is planning the CR929 in conjunction with Russia’s United Aircraft. Amid reports of friction between the two parties with respect to roles and international marketing, the current status of that program is more difficult to assess. Nonetheless, China will need a wide-body aircraft to become self-sufficient, and the only partner available with wide-body experience is in Russia.

A question for the US and European engine manufacturers is whether selling the latest technology to the Chinese is feeding the hand that will come back to bite them? Of course, the Chinese could purchase aircraft from Boeing and Airbus to access that technology and reverse engineer it. From an intellectual property standpoint, it may not make much difference once they gain the experience needed to produce key components.

Avionics companies and other suppliers are also concerned about intellectual property and have offered the last generation of technology, rather than the current generation of technology, to COMAC during the C919 development. There is now enough concern about potential Chinese competition that some suppliers do not wish to spawn a lower-cost Chinese competitor and are further protecting their software and intellectual property.

The Bottom Line:

COMAC will be a player in the aircraft market. The question is not if, but when, and whether it can scale up production to take the lion’s share of the Chinese market. China operates on long-term strategies, thinking up to 50 years in advance. They will persist in their goals to become a major player in aviation and may achieve that goal in the 2030-2035 time frame.

In the interim, the 737 MAX will become a trade negotiating point for the Chinese. America’s largest export is aircraft. Choosing Airbus and COMAC over Boeing is a weapon that Xi Jinping will have in his quiver as negotiations over tariffs and economic relations continue.

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