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May 14, 2019, 3:01 p.m. EDT

China threatens to reduce Boeing orders, but analyst says options are limited

Chinese airlines are stuck with Boeing, analyst says

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By Claudia Assis, MarketWatch


Reuters
Workers attend a ceremony marking the first delivery of a Boeing 737 Max 8 airplane to Air China at the Boeing Zhoushan completion center in China, Dec. 15.

Boeing Co.’s 737 Max grounding could not have come at a worse time for the company and the industry, caught in the crosshairs of the U.S.-China trade war.

That’s from Ken Herbert, an analyst at Canaccord Genuity, in a recent note. As part of the ongoing trade-war rhetoric between the U.S. and China, the Chinese government has signaled a reduction in orders for U.S.-made products, and has zeroed in on Boeing /zigman2/quotes/208579720/composite BA +1.41%  jets in particular, he said.

But Chinese airlines, like their U.S. counterparts, may be largely stuck with Boeing to sustain the growth of their commercial airline industry, Herbert said.

See also: Dow rebounds 300 points after trade-inspired rout

Chinese airlines currently have 231 Boeing commercial aircraft on order, including 192 737 Max planes, Herbert said. In addition, China has placed orders for at least two 777 aircraft and several 787s, he said.

“It is also likely that hundreds of additional unassigned aircraft in Boeing’s backlog are destined for Chinese customers,” Herbert said.

China’s options outside Boeing remain limited, with Airbus SE’s /zigman2/quotes/208224336/delayed FR:AIR +0.59%  A320neo, the main 737 Max competitor, largely unavailable at least in short order.

China’s domestic C919 aircraft, by Chinese aerospace company Commercial Aircraft Corp. of China, or Comac, “remains well behind schedule,” with first deliveries not expected until 2021, he said.

While the trade-war risk is substantial, a lack of “significant Chinese orders over the past few years limits the near-term risk of cancellations and exposure relative to the broader backlogs,” Herbert said.

If U.S.-China relations deteriorate further, however, Chinese influence on other countries could eventually be another headwind for Boeing and for the sector, the analyst said.

Related: Boeing’s quarterly miss does little to stop jet maker’s stock rise

Moreover, “considering the political nature of the recertification of the 737 Max,” China would be in no hurry to recertify the aircraft regardless of the direction the U.S. Federal Aviation Administration takes as long as the trade issues are unresolved, he said.

Boeing shares closed at a four-month low on Monday after the U.S.-China trade-war fears roiled equity markets and after The Wall Street Journal reported that the 737 Max fleet may be grounded for longer than anticipated and miss out the summer travel season.

The Max fleet was grounded after being in two fatal accidents less than five months apart. Initial reports linked the crashes in Indonesia in October and in Ethiopia in March to a faulty flight-control system. Boeing has been working on a fix.

Boeing shares are down 0.1% in the past 12 months, contrasting with gains around 4% for the S&P 500 index. /zigman2/quotes/210599714/realtime SPX +0.26%  

/zigman2/quotes/208579720/composite
US : U.S.: NYSE
$ 384.20
+5.35 +1.41%
Volume: 3.30M
Sept. 17, 2019 6:30p
P/E Ratio
44.99
Dividend Yield
2.14%
Market Cap
$213.18 billion
Rev. per Employee
$660,961
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/zigman2/quotes/208224336/delayed
FR : France: Euronext Paris
121.96
+0.72 +0.59%
Volume: 982,387
Sept. 17, 2019 5:36p
P/E Ratio
25.34
Dividend Yield
1.35%
Market Cap
€94.26 billion
Rev. per Employee
€476,596
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,005.70
+7.74 +0.26%
Volume: 1.84B
Sept. 17, 2019 4:56p
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Claudia Assis is a San Francisco-based reporter for MarketWatch. Follow her on Twitter @ClaudiaAssisMW.

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