This report is a transcript, for the YouTube video found here:
Thanks for reading Inside China / Business! Subscribe for free to receive new posts and support my work.
Bullets:
Numerous international airlines are expressing strong interest in the purchase of the C-919 aircraft, built by the Chinese planemaker COMAC.
The C-919 is a direct competitor to Boeing’s 737 and the Airbus 320, but at lower cost.
More important is the C-919’s availability in the markets where regulators have approved the plane. Boeing and Airbus both suffer from regular supply chain shocks and equipment and parts shortages. Their delivery schedules are years behind.
Ryanair is the largest airline in Europe, and its CEO declared his intention to purchase the C-919 aircraft for their fleets when the planes are approved for the European market. That provoked a strong response from US Congressman Raja Krishnamoorthi of Illinois, which in turn led Ryanair to announce that if the Boeing aircraft already on order come with higher tariffs, they will cancel them.
Report:
Good morning.
I fly a lot, here in Asia mainly. And the tendency is to just assume that the big companies that build the big planes, have their act together. That they must have lots of experts who know everything that’s going on, and that their supply chains are buttoned up, top to bottom, and their management teams are the best that money can buy. Nobody should have those delusions anymore, because every news story that comes out of this industry is worse than the one the day before.
There are severe production delays at the big duopoly of plane manufacturers, Airbus and Boeing. We’ve done a few features on those already. This headline is hard to believe: Boeing faced a major problem a few months ago, because of a sudden shortage of nuts and bolts. They were running out of the fasteners needed to hold the 737 MAX together, especially what they need for landing gear.
SPS is the sole manufacturer of many of the specialized nuts and bolts for airplanes. and they suffered a major fire at its production facility in Philadelphia. Boeing and all the other aerospace companies scrambled around, trying to determine what impact that will have on their operations. GE Aerospace is one of them, “trying to figure out who can replace the factory’s lost production and identify who has spare parts.” Safran is a French company that makes engines and landing gear, and they contacted their suppliers to ask if they were getting parts from SPS. Boeing sent a letter to their suppliers, asking them if they regularly used parts from the factory, and to explain what the plan is, just in case the fire is as bad as it looks on TV.
But these are all things GE, and Safran, and Boeing should already know. This is manufacturing chain of custody. It’s first semester, first week of Supply Chain Management schools. It is business basics, but here we are and the biggest manufacturers in the world don’t know where their nuts and bolts come from. This part is weird. A shipment that was headed to Boeing survived the fire, but Boeing can’t get it. Makes us almost wonder if someone figured out the price should be a lot higher, now that fasteners suddenly became a lot more scarce.
These are not magnets that come from Chinese rare earth refineries, that come with heavy geopolitical and strategic significance, because they’re used in avionics systems for civilian planes, and also in the manufacturing of ballistic missiles and air defense. These are brackets, and screws. These supply chains don’t run through regulators in Beijing or Moscow. They’re nuts and bolts, and then a warehouse in Philadelphia burned down and nobody can get them anymore.
So a few months passed and Boeing found some fasteners, but now there is an industry-wide shortage of them. The prices are going way up while the supply chain adjusts and new manufacturers are found.
Complicating everything is the tariff situation, which varies day to day and affects prices and delivery times for everyone doing anything.
We can suppose that the letters came back from Boeing’s suppliers, and Boeing executives learned that they were, in fact, buying a lot of fasteners from SPS. Forty parts that Boeing needs come from solely from this company that just burned down in Philadelphia, and so they’re racing around for alternate sources, which will probably take nine months or longer.
Two hundred and fifty of SPS’s employees were laid off after the fire. We might think here, that since all these multibillion dollar companies are so desperate for fasteners that this company had a monopoly on, they would quickly get a new plant up and running and get these people busy right now, getting production back online so that landing gear from Safran and Boeing don’t fall off. Because a normal business person knows that when a skilled technician loses his job, he’ll find another one working somewhere else, and it would be better for Boeing and GE to keep him around building nuts and bolts for airplane engines, instead of going down the street to fix air conditioners or cars. That’s something general business management students learn in their first week.
COMAC is a Chinese company, and they build a plane, the C919. Airlines across the world are taking a hard look at buying them, because they can’t get any planes from Airbus and Boeing. The advantages to buyers are obvious, the C919 is more affordable, and that they can get one in the first place. There are two airlines in Malaysia that are in negotiations. Ryanair is the biggest airline in Europe, and their CEO, Michael O’Leary, said they also are interested in buying them. The C919 is similar to the Airbus 320, and if the Chinese could make them available for a lower price, Ryanair is a buyer. They want the best value for their fleet. He doesn’t care who builds the plane—Boeing, Airbus, or COMAC, no matter. And he’s got the same problems they have in Malaysia, and at Air India, and airlines everywhere else in the world. They can’t get planes at all. Ryanair can’t buy new aircraft from Airbus, at least at a price they like, until 2030 at the earliest. Ryanair has big plans for expansion, and they’re a huge customer for Boeing, but Boeing can’t build enough planes either.
A US congressman read the quote from Mr. O’Leary, and fired off a letter—To bring to his attention the risks associated with the Commercial Aircraft Corporation of China, and to raise concerns about his suggestion that Ryanair would consider purchasing their planes. Congressman Raja Krishnamoorthi points out that Ryanair flies Boeing aircraft built in the United States, and COMAC is a Chinese company, just in case the CEO of the biggest airline in Europe doesn’t know where planes come from.
Congressman Krishnamoorthi goes on to demand answers to these four questions, and an answer no later than two weeks later. A reminder, that Michael O’Leary is not an American citizen, and Ryanair is a company in Ireland. Ryanair doesn’t even operate in the United States. Michael O’Leary is just a big Boeing customer who can’t get enough planes. So he’s under no legal obligation to even read the letter, let alone consult with his legal team and public affairs people and put together a response before 15 May.
So it was probably a surprise, to everyone, when O’Leary answered the very next day. He threatened to cancel outstanding orders for hundreds of Boeing aircraft, worth tens of billions of dollars, if his prices go up because of the tariffs. The threat from one of Boeing’s biggest customers was the latest signal of a reordering of global aerospace. Another analyst points out that the trade war between the US and Europe is raising prices for aircraft at Airbus and Boeing, and that represents a big opportunity for COMAC.
The C-919 is awaiting certification in Europe. Regulators there expect it to be approved for operation in Europe within the next few years, and O’Leary knows it. And COMAC knows it too. “Ultimately the aircraft will be certified”, and he doesn’t care who builds the thing as long as he can get it and the price is right. The experts who tell us about all the challenges facing COMAC in going up against Airbus, and especially Boeing—they have everything wrong. In order to make sales and take markets, all COMAC needs to be is minimally competent—as long as COMAC isn’t horrible at their job, they will sell planes as fast as they build them.
Be Good.
Resources and links:
Reuters Exclusive: Aerospace industry scrambles to deal with fallout from huge US factory fire
Business Insider, The CEO of Europe’s biggest airline is in a spat with a congressman over threats to cancel Boeing orders and buy Chinese planes
Ryanair Would Consider China’s C919 Over Boeing 737s “If It Was Cheap Enough”
https://simpleflying.com/ryanair-consider-c919-over-737-if-cheap-enough/
Letter, from Congressman Raja Krishnamoorthi to Ryanair CEO re: Proposed purchase of COMAC aircraft
Reuters Exclusive: Ryanair threatens to cancel huge Boeing order if tariffs raise prices
Reuters, US lawmaker warns Ryanair against buying Chinese-made planes
South China Morning Post, Malaysian airlines interested in China’s C919 jet, country’s transport minister says
Reuters, Air India CEO warns aircraft shortage to last at least four years
Reuters, Boeing eases latest 737 MAX headache - a shortage of nuts and bolts
250 workers laid off at SPS Technologies following massive factory fire
Global route map, Ryanair
https://www.flightconnections.com/route-map-ryanair-fr
Simple Flying, Here’s Why Ryanair Doesn’t Fly To The United States
https://simpleflying.com/why-ryanair-doesnt-fly-us
Reuters, European approval for China’s C919 plane needs 3-6 years, regulator says
Thanks for reading Inside China / Business! Subscribe for free to receive new posts and support my work.
From Inside China / Business via this RSS feed