Boeing's poison is Beijing's meat

Business | Ivan Tong 15 Mar 2019

Countries across the world have blacklisted all Boeing 737 Max aircraft and banned the planes from their airspace following the fatal crash of an Ethiopian Airlines flight this week.

The groundings appear to have had the biggest impact on the US-based aerospace giant rather than the affected airlines, as shares of Boeing fell more than 10 percent for a second straight trading day before edging upwards on Wednesday night.

Questions on whether the 737 Max is safe and whether there is a link between two deadly crashes involving the same model plane in less than six months remain and need to be carefully studied by aviation experts.

But objectively speaking, the groundings will now be tied to Sino-US trade negotiations.

China has been on the horns of a dilemma since the start of the trade war. Tech titan Huawei made headlines internationally overnight as Meng Wanzhou, the daughter of Huawei's founder and chief financial officer, lost her liberty.

However, Huawei and Boeing have much in common.

Firstly, both giants have extended their reach all over the world and earned valuable foreign exchange for their countries and themselves. Huawei is a symbol of China's technological prowess, just as Boeing is an American icon.

Secondly, though they are engaged in different businesses, one involves internet security while the other is about the safety of our lives.

Although the United States keeps demonizing Huawei, internet security is a danger that's invisible to the public unlike safety in the skies, which is a very real threat.

Boeing's crisis deepened after China wasted no time in grounding all 737 Max jets. Singapore, the United Kingdom, France, Canada, Thailand, Australia, Hong Kong joined the growing list before the United States announced the suspension of all 737 Max flights.

It would have been no surprise if France - home to Boeing's arch rival Airbus - had been the first country to ground the 737 Max.

But China has been buying Boeing jets for several decades and Chinese airlines currently operate the world's largest 737 Max fleet with 97 planes and are the aircraft's biggest customer. Thus, it made practical sense for Beijing to act swiftly and ground the jets.

US President Donald Trump was the first to attack Huawei over alleged cybersecurity violations without a shred of evidence but the 737 Max disasters are cold hard facts.

Are people's lives less important than Boeing's order book?

Looking at it from another angle, Huawei was on the defensive but now it is Boeing's and the Federal Aviation Administration's turn to prove that the jet is airworthy and safe to fly. This, I believe, will take time.

Meanwhile, there are reports that Indonesia is requesting its carriers to cancel their 737 Max contracts and switch to Airbus, although these orders have been completed and are ready for shipment.

The losses and compensation claims for Boeing, driven by a series of potential problems, have not yet been quantified, and that is why there is a sharp slump in its share price.

Some commentators says the clamp on the 737 Max will strengthen Beijing's hand during its trade negotiations with the United States.

This is partly true.

Purchases of Boeing aircraft will certainly be a key point on the table and China now has more room for bargaining following the Boeing crisis. At the same time, Boeing has become America's Achilles heel, so the United States has to support Boeing just as China has to support Huawei.

However, trade negotiations have remained on the straight road: intellectual property rights and industrial restructuring are core issues rather than simply buying American products.

As the 737 Max is a medium-range workhorse, the groundings have only affected medium-haul flights.

Had long-haul intercontinental flights been affected, there would have been global chaos, hitting Boeing even harder.

Ivan Tong is Editor in Chief of The Standard.

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