For the last few decades, the commercial aviation industry has been a boring one with only two major players.
The two, Boeing, formed in 1916, and Airbus, formed in 1970, control almost the entire global industry between them.
Building aircraft is rocket science. The risks are high and the regulatory oversight is stringent. Companies need to work with multiple regulators and numerous vendors. It’s also a technology- and capital-intensive business.
Since development projects run for years and most of the customer payments are received only upon aircraft delivery, cash flow management is tricky too.
For all these reasons and more, the Boeing and Airbus duopoly haven’t really seen a formidable opponent in all these years. However, China is trying to change that.
The flying dragon
In May 2008, in the middle of the Global Financial Crisis, Commercial Aircraft Corporation of China (Comac) was formed with state support to challenge the duopoly and reduce China’s dependence on Boeing and Airbus.
The company’s first plane, ARJ21, was a short-range regional jet with 70-90 seats. The aircraft started flying in 2016.
A more ambitious C919 plane, which will carry over 150 passengers and compete with Boeing and Airbus in the single-aisle market, has already had its first flight. C929, a widebody, long-range aircraft is also in the making and a larger C939 is proposed.
Both Boeing and Airbus believe that China will lead the demand for planes over the next 20 years. In its commercial market outlook released last year, Boeing has forecasted China will account for almost a fifth of the world’s demand for planes.
Airbus has forecasted over 16,000 deliveries in the Asia Pacific region, led by China. In such a market, there is some logic to China’s ambition to challenge the status quo.
The lockdown opportunity?
The travel industry has been hit hard by the ongoing lockout. Over half of the world’s planes are grounded as borders remain closed. Airlines are opting for cancellations, wary of future travel demand.
Boeing, which was already struggling, is now in bigger trouble. It’s 737 Max 8 plane, which was grounded in March 2019, is still not back in the skies. It is not expected to be back for a few months at least.
The 737 Max 8 crisis has cost Boeing billions of dollars in addition to severe reputational damage. Its proposed 797 program may also bite the dust due to lack of demand.
Airbus has failed to convert Boeing’s troubles into its opportunity. Bribery charges and technical glitches have stopped it from doing so.
With the duopoly in trouble, Comac has a chance. The question is, is there enough demand?
The divided world
The coronavirus epidemic is expected to further shift the balance of power towards China as Western economies struggle to recover.
While travel demand may stay muted, Chinese airlines will still need thousands of new planes over the next several years to replace the ageing fleet and to cater to new flyers.
The crisis may also create a wall between China and the rest of the world, creating an opportunity for Comac to replace Boeing and Airbus in the domestic market.
Realistically, beating Boeing and Airbus in the widebody game will be tough for Comac’s C929 and C939 (in this decade at least) as safety remains a concern. However, the C919 has a real chance to lead the domestic single-aisle market.