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Boeing To Build Its First Offshore Plane Factory In China As Ex-Im Bank Withers
Facing severe pressure from state-subsidized foreign competitors and the end of federal export financing, Boeing BA -1.76% has decided to throw in the towel. After a hundred years of producing its commercial aircraft exclusively in the U.S., the nation’s largest exporter will build its first offshore aircraft plant in China.
The new plant will be a joint venture with a Chinese entity to install interiors and paint exteriors on 737 airliners, Boeing’s popular single-aisle jetliner that competes with the Airbus A320. China’s official Xinhua news agency reported yesterday the company has signed a huge deal for 300 737s with three Chinese companies, besting the record 250-plane deal that Airbus received for its A320 last month from low-cost Indian carrier IndiGo. The news agency report coincided with the visit of Chinese president Xi Jinping to Seattle, the home base for Boeing’s commercial aircraft operations.
Company insiders say the precise location of the new plant in China has not yet been decided, but it appears the uncertain fate of the U.S. Export-Import Bank figured in the decision to establish offshore production. (Disclosure: Boeing is a contributor to my think tank.) All of the 737s airframes destined for China will still be built in Renton, Wash., at the plane’s main assembly facility, and then finished at the new plant. But the relationship with China is likely to grow over time, because China, like Brazil, Canada, France, Germany, Japan and every other industrialized country (except now the U.S.) assists plane exporters in securing financing.
China’s rapid economic growth in recent years dictated that Boeing take steps to increase its presence there. The company estimates Chinese carriers will buy or lease 6300 commercial transports over the next 20 years, and 4800 of those will be single-aisle jetliners like the 737 and A320. Airbus began delivering A320s from a Chinese plant in 2009, and signed an agreement this summer to build a second such facility in the country. Boeing can’t afford to be left behind in the trillion-dollar Chinese market, and the Beijing government has been eager to attract the kind of high-tech manufacturing its products entail.
Boeing planes typically are more technologically advanced than those of its competitors, but they often cost more to buy than Airbus offerings even though they are more economical to operate across the lifetime of the aircraft. Federal export financing has been an important factor in sustaining Boeing’s global market share, because with price-tags frequently exceeding $100 million per plane, they are among the world’s most expensive types of capital equipment. Until recently, Boeing’s plan had been to source 80% of its production inputs in the United States while selling 80% of its jetliners overseas, but the end of Ex-Im Bank financing appears to be causing a shift in strategy.
Boeing chairman James McNerney recently told a Washington gathering that the company may have made a mis-step in planning to do all of its aircraft production in the U.S., given the failure of Congress to reauthorize Ex-Im Bank. Another big U.S. exporter, General Electric GE +0.00%, recently disclosed plans to move aerospace activities to Europe because of the easy availability of export credits there. Unlike in Europe, where export assistance often takes the form of subsidies, Ex-Im Bank costs are covered by fees charged to users, so no subsidies are involved. That fact does not appear to have mollified bank critics, who have blocked the bank’s reauthorization despite majority support in both chambers of Congress.
Facing severe pressure from state-subsidized foreign competitors and the end of federal export financing, Boeing BA -1.76% has decided to throw in the towel. After a hundred years of producing its commercial aircraft exclusively in the U.S., the nation’s largest exporter will build its first offshore aircraft plant in China.
The new plant will be a joint venture with a Chinese entity to install interiors and paint exteriors on 737 airliners, Boeing’s popular single-aisle jetliner that competes with the Airbus A320. China’s official Xinhua news agency reported yesterday the company has signed a huge deal for 300 737s with three Chinese companies, besting the record 250-plane deal that Airbus received for its A320 last month from low-cost Indian carrier IndiGo. The news agency report coincided with the visit of Chinese president Xi Jinping to Seattle, the home base for Boeing’s commercial aircraft operations.
Company insiders say the precise location of the new plant in China has not yet been decided, but it appears the uncertain fate of the U.S. Export-Import Bank figured in the decision to establish offshore production. (Disclosure: Boeing is a contributor to my think tank.) All of the 737s airframes destined for China will still be built in Renton, Wash., at the plane’s main assembly facility, and then finished at the new plant. But the relationship with China is likely to grow over time, because China, like Brazil, Canada, France, Germany, Japan and every other industrialized country (except now the U.S.) assists plane exporters in securing financing.
China’s rapid economic growth in recent years dictated that Boeing take steps to increase its presence there. The company estimates Chinese carriers will buy or lease 6300 commercial transports over the next 20 years, and 4800 of those will be single-aisle jetliners like the 737 and A320. Airbus began delivering A320s from a Chinese plant in 2009, and signed an agreement this summer to build a second such facility in the country. Boeing can’t afford to be left behind in the trillion-dollar Chinese market, and the Beijing government has been eager to attract the kind of high-tech manufacturing its products entail.
Boeing planes typically are more technologically advanced than those of its competitors, but they often cost more to buy than Airbus offerings even though they are more economical to operate across the lifetime of the aircraft. Federal export financing has been an important factor in sustaining Boeing’s global market share, because with price-tags frequently exceeding $100 million per plane, they are among the world’s most expensive types of capital equipment. Until recently, Boeing’s plan had been to source 80% of its production inputs in the United States while selling 80% of its jetliners overseas, but the end of Ex-Im Bank financing appears to be causing a shift in strategy.
Boeing chairman James McNerney recently told a Washington gathering that the company may have made a mis-step in planning to do all of its aircraft production in the U.S., given the failure of Congress to reauthorize Ex-Im Bank. Another big U.S. exporter, General Electric GE +0.00%, recently disclosed plans to move aerospace activities to Europe because of the easy availability of export credits there. Unlike in Europe, where export assistance often takes the form of subsidies, Ex-Im Bank costs are covered by fees charged to users, so no subsidies are involved. That fact does not appear to have mollified bank critics, who have blocked the bank’s reauthorization despite majority support in both chambers of Congress.
