Editors are joined by guest columnist Scott Mikus, director of Melius Research covering aerospace, to discuss Boeing&#x27;s strategic position in China following a 200-aircraft order from Beijing that disappointed Wall Street.

Does Boeing Need China Anymore?

Aviation Week's Check 6 Podcast

# Full Transcript

**Podcast:** Aviation Week's Check 6 Podcast

## Participants

- **Joe Anselmo** (Aviation Week)
- **Jens Flottau** (Aviation Week)
- **Guy Norris** (Aviation Week)
- **Scott Mikas** (Melius Research)

## Transcript

Welcome to the Check 6 Podcast. I'm Joe Anselmo, Aviation Week's Editor-in-Chief. U.S. President Donald Trump's recent visit to Beijing yielded some signs of detente in the aviation business between the two superpowers. The U.S. signaled that it would not interrupt the flow of GE Aviation commercial aircraft engines needed by China's COMAC. And China announced that it would purchase 200 Boeing jets, its first order from Boeing, in nine years.

But Wall Street was decidedly unimpressed, having speculated that the Chinese order would be much bigger. Boeing's stock declined nearly 5% in response. So what is Boeing's position in China after years of drought? More important, does the world's second largest civil aviation market even matter that much anymore as CEO Kelly Ortberg continues to lead Boeing's turnaround? Joining me to answer those questions are Jens Flottau, Aviation Week's Executive Editor for Commercial Aviation,

Senior Propulsion Editor Guy Norris. And returning to Check 6 is special guest Scott Mikas, Director of Aerospace and Defense Research at Melius Research and an Aviation Week columnist. Scott, let's start with you because you wrote a research note that breaks this all down very succinctly. Investors seem to believe that Trump was going to come home with 500 Boeing orders. You always thought that idea was a bit far-fetched. Correct. So typically when we see large order announcements, whether it's at the

Paris Airshow, Foreign Bureau Airshow, it's usually a mix of actual firm orders and options as well. So we weren't expecting 500 firm orders. We were expecting something probably closer to 250 firm orders and roughly 250 options as well. So the fact that it came in at 200 orders, that was a little bit below our expectations. But overall, demand is not the issue for Boeing.

In 2017, the last year Boeing had sold airplanes or taken orders from China. China accounted for more than a quarter of Boeing's deliveries. But you argue in your note that China is today a much less important factor in the company's long-term future. How so? Prior to the 737 MAX grounding, China was more than 20% of Boeing commercial airplanes revenue

and about 12% to 13% of Boeing's total revenue. And in the 2000s and 2010s, China had very robust GDP growth. And in the Chinese domestic market, revenue passenger kilometers were growing at a double-digit compound annual growth rate, which underpinned a lot of the demand for new aircraft deliveries from both Boeing and Airbus. So pre-2018, China was taking about 350 passenger aircraft annually from Boeing and

Airbus. Last year, they only took 200 aircraft. And as China's GDP growth has decelerated, so has its passenger air traffic growth. So in the Chinese domestic market, RPK...

Does Boeing Need China Anymore?

Transcript

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Does Boeing Need China Anymore?

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.