Boeing to lose China market share to Airbus and COMAC

21 March 2018, Global – 45% of all aircraft owned by China buyers are built by Boeing, slightly ahead of Airbus’ market share of 43%. However, Boeing will lose its market share dominance in the coming years as Airbus has nearly twice as many aircraft orders placed by China buyers as Boeing. Moreover, China could potentially retaliate against the United States’ current and future tariffs. In addition, home-grown COMAC also has a huge order backlog which could reduce China’s reliance on the two aircraft manufacturing giants in the longer term if its C919 and C929 programmes prove successful.

 

CURRENT CHINA-OWNED FLEET IS DOMINATED BY AIRBUS AND BOEING AIRCRAFT, WITH BOEING HAVING A SLIGHT MARKET SHARE LEAD OVER AIRBUS

It is common practice for larger airlines and aircraft lessors to have a balanced fleet of Airbus (AIR:FP) and Boeing (BA:US) aircraft to improve their bargaining power during aircraft procurement and for risk management purposes while taking into account operating efficiency and financing considerations.

In China, which is the largest buyer of aircraft in Asia, the same practice applies. China owns 2,569 commercial aircraft in service currently. Of these, Boeing has the largest market share, accounting for 45% of the total number of aircraft in service that are currently owned by Chinese companies.

Airbus ranks second with a 43% market share. The remaining 12% of China-owned fleet are built by Embraer ERJ:US (4% market share), Xi’an Aircraft Company (3%), Aviation Industry Corporation of China AVIC (2%), Bombardier BBD/B:CN (2%) and Harbin Embraer Aircraft Industry (1%).

Chart: Aircraft manufacturers – Market share of China-owned aircraft (2018)

Chart: Aircraft manufacturers – Market share of China-owned aircraft (2018)

 

HOWEVER, AIRBUS HAS NEARLY TWICE THE NUMBER OF AIRCRAFT ORDERS AS BOEING FROM CHINA BUYERS

However, China buyers appear to be favouring Airbus aircraft types in recent times. Currently, China buyers have 803 Airbus aircraft on order or on option. This is nearly twice the 497 Boeing aircraft that China buyers have on order or on option. The same holds true even if we consider the total seat count of these aircraft orders.

Chart: Number of aircraft on order and on option by China buyers (2018)

Chart: Number of aircraft on order and on option by China buyers (2018)

 

MOREOVER, CHINA’S HOME-GROWN COMAC HAS HUGE AIRCRAFT ORDER BACKLOG

China’s home-grown Commercial Aircraft Corporation of China (COMAC) has a huge order backlog of 1089 aircraft from China buyers, comprising of 743 C919 aircraft and 354 ARJ21 aircraft.

The delivery of the first C919 aircraft to its launch customer is still 3 years away at the earliest. Therefore, realistically speaking, the impact of COMAC’s developments on the two aircraft manufacturing giants Airbus and Boeing will be small in the near term. COMAC is likely to deliver fewer than 50 C919s during the first year of production. This is around less than 7% of Airbus’ annual production rate for its A320 by 2019 and 8% of Boeing’s target annual production rate for its B737 by 2018.

However, in the longer term, the China buyers are likely to place more orders for the C919 or its improved variant which would imply smaller appetite for ordering Airbus and Boeing’s narrowbody aircraft from China buyers. COMAC is also partnering Russia’s United Aircraft Corporation (UAC) to develop a widebody commercial aircraft C929 which could eventually raise competitive pressure on Airbus and Boeing.

 

HOME-GROWN COMAC COULD POTENTIALLY PRODUCE 19% OF CHINA-OWNED AIRCRAFT FLEET IF SUCCESSFUL…

Domestic aircraft manufacturer COMAC could potentially produce as much as 19% of the China-owned aircraft fleet based on the current orderbook.

Chart: Aircraft manufacturers – Future market share of China-owned aircraft

Chart: Aircraft manufacturers – Future market share of China-owned aircraft

 

…DIMINISHING AIRBUS AND BOEING’S MARKET SHARES IN CHINA

Based on the aircraft on order and on option placed by Chinese buyers, China’s aircraft fleet profile will change meaningfully in the coming years when these new aircraft are delivered (before taking into account the retirement of older aircraft).

Specifically, Boeing’s market share is expected to drop from 45% to 29% while Airbus’ market share will drop from 43% to 34%.

COMAC could potentially produce as much as 19% of the China-owned aircraft fleet. The remaining aircraft fleet will be built by Evektor Aerotechnik (5%), Aviation Industry Corporation of China (4%), Embraer (3%), Bombardier (3%), Xi’an Aircraft Company (2%) and Viking Air and others (1%).

 

AIRBUS WILL THEREFORE OVERTAKE BOEING’S MARKET SHARE DOMINANCE IN CHINA IN THE COMING YEARS

Boeing aircraft will no longer dominate the China-owned aircraft fleet. Airbus will overtake Boeing’s dominance and have the largest market share, accounting for 34% of China-owned aircraft. Boeing’s 29% market share could drop even lower, should China retaliate against the United States’ current and future tariffs by placing fewer new aircraft orders with Boeing going forward.

 

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