Sept. 22, 2015, © Leeham Co. The expected announcement by Boeing and Chinese President Xi during
his state visit to Seattle this week that Boeing will develop a Completion Center for the 737 in China is a significant event that may one day lead to an assembly line there.
Boeing’s touch labor union, the IAM 751, was predictably critical. In a post on the 751 website last week, the union said, “In a previous meeting with Renton’s 737 leadership we saw a brief presentation outlining Boeing’s perceived market conditions regarding sales of single aisle aircraft and the company’s desire to collaborate with China. We have asked the Company for details of what is intended with “collaboration” and have not received ANY information on “collaboration” or confirming or disputing the media reports. While we don’t know specifics of any such proposal, ANY shift of aerospace jobs from our bargaining unit or Washington State causes grave concern.”
Global realities really leave little choice. Airbus not only has an A320 final assembly line in China, it recently agreed to establish a Completion Center for the A330. This led to an order for 45 A330ceos plus options. Airbus sorely needed these orders to help fill the production gap between the A330ceo and its neo successor.
The Chinese are shrewd bargainers. The A330 order had been hanging for two years. During this period, Airbus became increasingly anxious over the production gap as it closed in on the transition between the ceo and neo.
We previously identified a production gap for the 737NG as it transitions to the 737 MAX. A lot depends on how Unidentified orders are scheduled into the delivery slots between now and 2017, when MAX production begins, and through 2019, when MAX production fully takes over from the NG. Boeing says there is no gap when NG options are taken into account, but until options become orders, they aren’t and by our analysis of the Ascend data base information, a gap exists.
Boeing is trying to advance MAX deliveries from 2018 into 2017—Alaska Airlines let the cat out of the bag on this one, and we further confirmed it with our Market Intelligence—which further points to a gap in 2017.
We have heard there may be a 737 order announced in connection with President Xi’s visit, one that is outside of the Unidentifieds. This would help any 737 gap.
We also have heard there could be some 777 Classic orders announced, but not enough to fill the production gap of this airplane as it transitions to the 777X. We still expect Boeing will have to pull down production rates for the 777 Classic well beyond the 1/mo Boeing already announced. (This was the “shooting blanks” metaphor announcement some months back.)
There could also be some 787 orders announced, Wall Street believes.
With Boeing charging head-long into production rate hikes with the 737, we believe the NG demand is more problematic than Boeing is willing to admit. Some weak airlines may be more willing today to defer deliveries due to low fuel prices, with transition NGs most at risk.
The 737 Completion Center could have an element of quid-pro-quo, as did the A330 Completion Center. But more to the point, this could be a strategic decision to help protect Boeing’s market share in China. Airbus has been increasing its share, and officials credit the A320 assembly plant as a key reason. The A330 Completion Center resulted in orders. COMAC’s C919 is nearing completion of the first airplane and, if all goes well, flight testing will begin next year. This 737/A320-sized airplane won’t be truly competitive with the MAX and A320neo, but there are several hundred orders and commitments for the aircraft. These come at the expense of Airbus and Boeing.
Airbus currently has a bigger commitment to China than has Boeing. We think the 737 Completion Center is the start of a catch-up. We fully expect the day to come when Boeing puts an assembly line in China. Whether it is the 737 MAX or an entirely new airplane remains to be seen.
While the IAM 751 may object, they only need look to Airbus for its response to its unions and politicians. For every one job created in China or Mobile (AL) for its A320 assembly lines, three jobs in the home markets are created. These were growth opportunities for Airbus and, at least in theory, there could be growth opportunities for Boeing by putting a line in China. The 737 Renton factory will max out at 63 MAXes a month, a rate under consideration by the end of the decade. While it is true another 737 line could find a home at Boeing Field or perhaps even Everett, if establishing one in China for the Chinese market, as Airbus did for the A320, helps guarantee Boeing market share there, then so be it.
Gaining three of four jobs in growth is better than losing the growth opportunity altogether.