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Boeing’s China problem keeps getting worse as Beijing sanctions a top exec for selling arms to Taiwan

September 19, 2022, 9:16 AM UTC
BOEING-CHINA-SANCTION
A Hainan Airlines Boeing 737-800 takes off from Shenzhen Bao’an International Airport on the second day of the Chinese New Year, Feb. 13, 2021.
Wang Rendong—VCG

China sanctioned Boeing’s top defense executive just as the long-held ties between the U.S.’s top airplane maker and the world’s largest aviation market appear to be fraying.

Sanctions were announced on Friday against Ted Colbert, CEO of Boeing Defense, Space, and Security, and Gregory Hayes, chairman and CEO of Raytheon Technologies, in retaliation for Boeing and Raytheon selling $1.09 billion in weapons to Taiwan. As part of the purchases, Taiwan bought $355 million worth of Boeing’s Harpoon missiles and $85 million worth of Raytheon’s Sidewinder missiles.

The U.S. government had announced the arms sales last week and said they were necessary for Taiwan to “maintain a sufficient self-defense capability” amid rising military pressures from Beijing.

Beijing explained the reasoning for the sanctions on Friday.

“China firmly opposes and strongly condemns the sales,” Mao Ning, spokesperson for China’s Ministry of Foreign Affairs, said at a press conference. “The arms sales gravely undermine China’s sovereignty and security interests, and severely harm China-U.S. relations and peace and stability in the Taiwan Strait.”

The Boeing Co. is the parent firm of both Boeing Defense, Space, and Security, a defense contracting unit, and Boeing Commercial Airplanes, the division that makes passenger airplanes.

Boeing did not respond to Fortune’s request for comment on the sanctions and their effects on its China business.

Airplane sales

Boeing has a 50-year–long history of selling planes in China, and Boeing jets account for roughly one-half of China’s passenger aircraft fleet. In 2018, China accounted for 22% of Boeing’s aircraft revenues, Boeing’s second largest market behind the U.S., which made up 29% of the firm’s revenues. But that close relationship has become strained.

China was the first country to ground Boeing’s top-selling 737-Max airplane in 2019, when a faulty design in the model contributed to two airplane crashes. It was also among the last countries to clear the airplane model for the skies last December, and the Civil Aviation Administration of China, the country’s airplane regulator, still has yet to clear Chinese airliners to receive new deliveries of the aircraft.

China has “lost confidence” in Boeing and its B737 Max jet owing to strained U.S.-China relations and 737-Max crashes, state-owned newspaper the Global Times wrote in July.

Boeing, meanwhile, has reportedly built up a backlog of 120 737-Max airplanes that are destined for the Chinese market since China cleared the airplane model for the skies last December. But Boeing appears to be giving up on being able to send them to China anytime soon, announcing last week that they are reselling some of those planes to other countries amid the holdup in China.

“We have deferred decisions on those planes for a long time, [but] we can’t defer that decision forever,” Boeing Co.’s chief financial officer, Brian West, recently said at a conference hosted by Morgan Stanley. “So we will begin to remarket some of those airplanes. They were otherwise earmarked for our Chinese customers.”

Boeing’s chief rival, Airbus, meanwhile, announced in July that China’s top three carriers ordered 292 new A320 jets for $37 billion, signaling China’’s preference for the A320 airplane over Boeing’s 737-Max. China’s state-owned COMAC is also set to soon begin deliveries of its long-awaited C919 jet, which will further shrink Boeing’s market in China.

Boeing lamented in July that years of rising U.S.-China tensions, a trade war, and increased pressures over Taiwan have hurt the airplane giant’s business in the country.

“As a top U.S. exporter with a 50-year relationship with China’s aviation industry, it is disappointing that geopolitical differences continue to constrain U.S. aircraft exports,” a Boeing spokesperson said in July.

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