China Considers Excluding Boeing 737 Max From Trade Deal

Bloomberg News
China Considers Excluding Boeing 737 Max From Trade Deal

(Bloomberg) -- China is looking at excluding Boeing Co.’s troubled 737 Max jet from a list of American exports it would buy as part of a trade deal with the U.S., people familiar with the matter said.

Boeing jets were featured on a draft list of American products China would buy to reduce its trade surplus with the U.S., the people said, asking not to be identified discussing private deliberations. Now, safety concerns are pushing China to examine whether to cut the 737 Max from the list altogether or replace it with other Boeing models after the crash of a plane operated by Ethiopian Airlines led to the aircraft being grounded worldwide, they said.

A reduction in aircraft purchases could make it harder for China to fulfill an offer it’s said to have made to pare its $300-billion-plus annual goods trade surplus with the U.S. over six years, and potentially delay any overall agreement between the two countries. Worth billions of dollars and a key U.S. export, planes would likely be a key component of any commitment by China to buy more American goods, along with soybeans, meat and natural gas.

China’s Ministry of Commerce, which is in charge of the nation’s trade talks with the U.S., referred queries to the nation’s top economic planning body, which didn’t immediately respond to a request for comment. A Boeing representative declined to comment.

Boeing rose less than 1 percent to $373.43 at the close Tuesday in New York. The company’s market value has tumbled about $28 billion since the Ethiopian Airlines crash.

For Boeing, China’s exclusion of Max purchases in a trade deal would mark another setback for a company that’s reeling from a crisis of confidence over its top-selling plane, which accounts for almost a third of its operating profit.

Chinese airlines made up about 20 percent of 737 Max deliveries worldwide through January, according to Boeing’s website. China Southern Airlines Co. has 16 of the aircraft, with another 34 on order. China Eastern Airlines Corp. has 13, while Air China Ltd. has 14, according to Boeing. Other Chinese airlines that have bought the Max include Hainan Airlines Holdings Co. and Shandong Airlines Co.

The 737, which first entered service in the late 1960s, is the aviation industry’s best-selling model and Boeing’s top earner. The re-engineered Max version has racked up more than 5,000 orders worth in excess of $600 billion, including planes that have already been delivered.

The model duels with rival Airbus SE’s A320neo family in a global, head-to-head competition for sales. While the European planemaker is increasing narrow-body output at its plant in Tianjin and elsewhere, the 737 Max’s grounding has no bearing on Airbus demand, Chief Commercial Officer Christian Scherer said Tuesday at an event in Taipei.

Most of China’s airlines count the government as its top shareholder and aircraft purchases are often coordinated by state agencies including the Civil Aviation Administration of China and National Development and Reform Commission. No other country has more demand for aircraft than China, which is estimated to seek 7,690 new planes worth $1.2 trillion in the 20 years through 2037, according to Boeing’s latest forecast.

(Updates with attempt to contact NDRC in fourth paragraph.)

--With assistance from Kyunghee Park, Dong Lyu and Debby Wu.

To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net;Jenny Leonard in Washington at jleonard67@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, ;Jessica Zhou at jzhou75@bloomberg.net, Ville Heiskanen

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