Did Boeing Just Sell Out to China?

By Rich SmithFool.com

Boeing's best-selling 737 airliner: soon to be "Made in China?" Source: Wikimedia Commons.

A lot of folks are saying a lot of things about Boeing's plan to open a new factory in China -- and they're not always complimentary things. Here's what you need to know about the deal.

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On Wednesday, Boeing hosted Chinese President Xi Jinping at a tour of its widebody commercial plane factory in Everett, Wash. Concurrent with the visit, Boeing announced that it has finalized agreements to sell 300 aircraft to various Chinese customers -- and to open its first factory in China to complete assembly of 737 airliners in particular.

The planesRegarding the airplane sales, Boeing announced the finalization of orders for $38 billion worth of airplanes (at list prices), including:

  • 50 widebody jets, of models not named, to be bought by Chinese airlines (also unnamed).
  • 190 single-aisle 737s to be bought by the same group of airlines.
  • 60 more 737s to be bought by the leasing arm of Industrial and Commercial Bank of China and by CDB Leasing.

Boeing did not clarify how many, if any, of said 300 airplanes may have already been entered into its order book under previously announced "firm orders." Tellingly though, Boeing's latest plane order update contained mention of not 300 new firm orders, but just two -- and not for 737s, but 787s.

The factoryFor the first time ever, Boeing will open an airplane completion and delivery center in China. Final assembly of the aircraft will still happen in the United States, but then the mostly complete 737s will be delivered to China for installation of their interiors and painting in the liveries of their ultimate owners.

Says Boeing, the "China-based facility will not reduce 737 Program employment in Washington State." To the contrary, by increasing capacity for "completion" work overseas, Boeing says it will be able to increase actual production of 737s back here at home.

The grand planLabor leaders (and Mr. Trump) aren't buying Boeing's explanation -- but it does sort of make sense. As we've pointed out multiple times over the past few months, Boeing has a backlog problem. At last count, Boeing had 5,710 airplanes in its "backlog" awaiting construction and delivery. 74.7% of the these airplanes, or nearly three out of every four, were 737s.

At current production rates (42 single-aisles built per month), it would take Boeing more than 100 months to build and deliver all 4,269 of the 737s in its backlog. That's probably why, when announcing its new Chinese venture, Boeing took pains to repeat its already-published plans to accelerate 737 production to 47 airplanes per month in 2017, and 52 planes per month in 2018. (The company has also talked about a secret plan to boost production a further 15% after that -- to 60 planes per month.)

Setting up an airplane completion operation in China, which Boeing says has an appetite for 6,330 new planes over the next 20 years, is a logical way to help it reach its announced production goals. Airbus currently has an advantage in the Chinese market, thanks to its operating one final assembly plant in China, and its construction of a completion center. Yet even fighting an uphill battle, Boeing is running neck-and-neckwith Airbus in China, with each planemaker controlling about half of the Chinese commercial airplane market.

Opening a new factory could help to level the playing field for Boeing when competing for Chinese sales against Airbus. And if Boeing succeeds in selling more planes to China -- while still doing the bulk of the work here in the U.S. -- labor leaders may soon have a lot less to complain about.

The article Did Boeing Just Sell Out to China? originally appeared on Fool.com.

Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 259 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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