Economic Influence

ANDERS CORR is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk. He is an expert in political science and government. Anders Corr

China Punishes US airlines

Beijing splits Europe from America through aircraft purchases

The united states, Europe, Japan, and other powerful economies should align more closely to protect democracy against China’s unscrupulous trade policies.

But as illustrated by the airline industry, Beijing skillfully uses its gatekeeper status to the massive China market to play the democracies against each other.

Since at least 2019, for example, Beijing has effectively used aircraft preferences to split the United States from Europe by manipulating purchases to benefit European manufacturers at the expense of U.S. companies such as Boeing. This scares countries such as Germany and France into silently accepting Beijing’s illiberality, including its now widely recognized goal of global hegemony.

When two of Boeing’s 737 MAX planes crashed in 2019, Beijing took the opportunity to be the first to ground the jet, and was the last major airline market to only partially approve MAX flights. More than 185 of 195 regulators globally cleared the MAX to fly after November 2020, yet 100 of the planes that China ordered still remain idled.

In 2021, Europe’s Airbus delivered 90 planes to China, but Boeing only delivered two. China’s Xiamen Airlines, which previously only used Boeing jets, announced plans in November 2021 to purchase 15 new Airbus A321 planes for its fleet.

China was the destination for a quarter of planes in 2021, according to Airbus CEO Guillaume Faury, who claimed on Jan. 10 to “have a strong presence in China.” Airbus has a final assembly facility in Tianjin for A320 single-aisle jets, and increased plane deliveries by 8 percent in 2021.

Beijing is also cutting U.S. airline access to China, with six more flights canceled on Jan. 13. The ostensible reason is the failure of airlines to enforce COVID-19 testing, and a growing number of COVID-positive passengers arriving in China.

Before the pandemic, U.S. and Chinese airlines operated approximately 100 China flights per week, now reduced to just 20. Hong Kong is currently undergoing a two-week ban on flights from the United States, Britain, and six other countries.

“Beijing and Washington have sparred over air services since the start of the pandemic,” according to Reuters, including through retaliatory 40 percent capacity limitations that Beijing started against United Airlines in August 2021.

Beijing’s constriction of flight routes from the United States has increased the cost of a ticket to as much as $6,000.

Airlines typically pay half the purchase price upon delivery of the aircraft, indicating to investors that Boeing will report 2021 sales of only $65 billion on Jan. 26 from 280 deliveries out of 909 orders, according to a Wall Street Journal report.

Many Boeing orders went undelivered due to COVID cancellations, the 737 MAX crashes, and 787 Dreamliner production problems. But in the case of China, regulatory delays have an additional political motivation.

“Airbus, which announced a new wide-body freighter last year to challenge Boeing’s dominance in that segment, has the advantage of still being able to deliver to Chinese airlines, a market all but closed to Boeing at present because of broader trade tensions between the U.S. and China,” according to the Journal.

That helps Airbus in the short term, given that Airbus now controls 60 percent of the workhorse jet market. The A320neo is sold out for the next few years, and the A321neo is selling increasingly well, including for international service.

Airbus is outselling the largest MAX six to one with its own large plane, according to year-end orders of aircraft not yet delivered.

Boeing seeks to increase production, but realizing this requires not only the recovery of airline traffic to pre-pandemic levels last seen in 2019, but a resumption of China deliveries. That resumption would require Chinese regulators to fully clear the 737 MAX.

Pre-pandemic, a quarter of Boeing’s orders came from China. But since the trade dispute of 2017, Beijing hasn’t ordered more Boeing jets. The 100 MAX jets idled for China now cost Boeing a fortune, with ever greater regulatory demands for new upgrades, training, maintenance, and paperwork to get some hoped-for delivery date in 2022 that could actually be never.

Beijing’s punishment of Boeing scares Airbus, and in turn Brussels, Berlin, and Paris into going soft on China’s human rights abuse and territorial aggression. Beijing can ensure that Europe wins the general aviation manufacturing competition until China is able to acquire the necessary technology to compete. That leaves the United States—which is advocating for a tougher and united stand against the Chinese Communist Party—out in the cold from the China market, and with deteriorating economic strength compared to Beijing.

While Europe’s economic interests may in the short term be served by U.S.–China tensions, in the long term, Brussels should cooperate more closely with Washington, or see the world increasingly fall into Beijing’s illiberal orbit.

Beijing’s constriction of flight routes from the United States has increased the cost of a ticket to as much as $6,000.