Leeham News and Analysis
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Leeham News and Analysis
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Chinese 737 Completion Center makes tactical, strategic sense
Sept. 22, 2015, © Leeham Co. The expected announcement by Boeing and Chinese President Xi during
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President Xi of China. Photo via Google images.
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.
Boeing should have done this earlier in response to ab factory in china. Nevertheless, it’s better late than never. Great move by Boeing.
It should not come a surprise if Boeing one day opens a FAL in china. with Ex-Im Bank is being sacrificed on the altar of economic purity, it will allow boeing to tap into the Chinese government financial support to conclude big deals with Chinese airlines.
This deal I’m sure has been in negotiations for years and probably a done deal for months just waiting for the visit to be announced so both sides get max exposure.
It is a smart move though I have to love the conspicuous use of quotes in the union statement. Very snarky 🙂
Personnally, I am a little bite more skeptical about a future FAL for the 737MAX. China has already a FAL for the A320 and will begin the production of the C919 in a few years. Boeing should have responsed to Airbus earlier.
Great article reflecting the current situation, I think Boeing has to work fast before loosing the whole ground. No doubt Airbus working aggressively in china even in USA and Boeing has to find new means to counterpart that effect before it is too late
So, airplanes are not computers (well…) so I suppose the experience of PC and computer makers creating their own competition may not apply, but isn’t this going to further help China boot-strap its own aviation manufacturing ambitions?
It’s only an assembly center. It will help train a workforce but from an engineering standpoint the impact will be much less than they will get from the Airbus investments.
I don’t see anyone creating 3 jobs in the US for each job created in China. I’m certain that China is gaining jobs.
I see a clear difference between policies in China, Europe and the US. China and Europe are focused in strengthening their industrial base and building prosperity. Our policies are focused on investor interests, even at the expense of our industrial base.
Once US producers have integrated their interests into the global economy, they will apply their prodigious lobbying resources to protecting those global interests. ….. uhhh. Maybe that’s already happened.
Well said!
Excerpted from Letter of Understanding 42, to the IAM-751 contract:
“With approval of the contract extension, the Company will produce the 737NG models and 737MAX models in Renton, to the extent such production can be feasibly completed in the current and existing 737 Renton production facilities.”
The argument, (If the union chooses to fight, and that’s not assured given it’s weakness and equally feckless leadership), will be over what is feasible, and what is not.
In my view, a rate of 62/mo is quite feasible out of Renton, with Seattle delivery, as is, where is, and any movement of IAM jobs from the 737 program is a blatant contract violation. 2 lines are moving 42/mo now, a brand new third line is going operation as we speak. That’s capacity for another 21.
Flight test is a non-issue, ideally, a 737 only gets 2, and NO 737 is going to fly trans-pacific on it’s B-1 flight. That would be reckless to the point of negligence.
The capacity to install another 21 interior sets exists in the 4-82 building, so it’s down to the red herrings of ramp space and paint hangar capacity. And just how cowardly the IAM leadership is vs how many lies Boeing is willing to proffer.
The only thing wrong with your example here is that the condition of assembly for the renton deliverable will obviously exclude paint and interiors and whatever else the customer wishes to install himself….. I see this as fully compliant with the mou as the 737 is delivered to the customer who flys it home…… Renton built a flyable 737, end of argument….
Raoul: Like others I do not see the completion center as a contract issue (certainly do we want to shift jobs over there)
An no, I am neither anti or pro union. I have worked both sides of that street and its some and some.
I don’t get the B1 flighty thing, you just do your two flights in US and fly it over there and they do their own pre-delivery flights for installed equipment.
Dismissing the claim and counter claim of Airbus aeroplanes vs Boeing there’s no denying Airbus leads the field in terms of having a more politically acceptable product.
Airbus were far sighted enough to capitalised on this weakness where Boeing would have and continue to fail for a host of reasons.
The US domestic market is critical for Boeing as outside the US only a handful of countries maintain any brand or political loyalty to Boeing. Whatever your political, religious or cultural persuasions this situation shows no sign of changing.
Jacking up production figures is a short term solution to a long term problem.
Hi
Unless am I being my normal ignorant self I did not detect a timeframe in all of this. More a MOU than anything concrete. A completion centre will not need massive lead times compared to FAL but there is still an appreciable gap between this announcement and the completion centre being opened. This ties quite awkwardly with the MAX as in my view Boeing will be looking to replace the MAX sooner rather than later with some form of NSA.
The combination of C919 in the Chinese market and the existing A320 line in Tianjin will start making this neck of the woods rather crowded with completed single aisles. Having said that better late than never.
Chinese proverb
‘ The best time to plant a tree is 20 years ago, the second best time is today’
Yep, the 919 is the interesting bird in the mix.
If all China airlines are forced to use it in the same proportion then the inside China market is as level as it gets.
As the 919 is not competitive and no incentive to compete on price you have to wonder where it all goes.
FAL is about 10% of total cost … completion center as Boeing is projecting is even much smaller
Components come from US, Europe, Japan and even China + many other countries
Do you believe that well qualified workers are much cheaper in China ??
I know from experience that Indian qualified engineers are expensive otherwise they find good Jobs in Europe or in the US !!
Finally do you think that an A320 assembled in China is cheaper than in Mobile or german factory ??
It is all about market shares in the fastest growing market !!!
Also very speculative, now that Airbus is deeply committed in China what happens if Boeing comes out with an all new 737RS?
Suddenly A320 is in the same position as the MD model built in China let alone an even more dated 919