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Boeing Raises China Forecast, But Trade War Clouds Prospects

Dong Lyu, Kyunghee Park
Boeing Co. Dreamliner 787 planes sit on the production line at the company's final assembly facility in North Charleston, South Carolina, U.S., on Tuesday, Dec. 6, 2016. On the day President-elect Donald Trump lashed out at Boeing Co. for the cost of replacing Air Force One, mechanics and engineers at the planemaker's South Carolina factory were focused on another challenge: making the first 787-10 Dreamliner. The manufacturer is counting on the newest and longest Dreamliner to help turn its marquee carbon-fiber jet into a cash machine. Photographer: Travis Dove/Bloomberg

Boeing Co. raised its forecast for aircraft demand in China even as an escalating trade war between the world’s two biggest economies casts a shadow over the planemaker’s prospects in the Asian country.

China will need 7,690 new planes valued at $1.2 trillion in the two decades through 2037, the Chicago-based company said Tuesday as part of its annual report outlining the global market scope for the next 20 years. That is a 6 percent increase over its projections last September for 7,240 aircraft through 2036.

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"The growth in China can be attributed to the country’s growing middle class, which has more than tripled in the last 10 years and expected to double again in the next 10," Randy Tinseth, vice president of marketing at Boeing, said in a statement. “The future of commercial aviation in China is very exciting.”

While Boeing’s predictions are based on a blend of economic and airline-user data and don’t include the potential ripple effects from geopolitical or economic turmoil, the trade tensions between the U.S. and China are threatening to weigh on future sales. Boeing has maintained a narrow lead over Airbus SE in the Asian country, but that edge may be at risk if China were to include commercial aircraft in its retaliatory tariff measures against the U.S.

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Jetliners have managed to escape the tit-for-tat levies so far, but with the Trump administration considering imposing punitive duties on more than $200 billion of additional imports from China, it is still unclear if President Xi Jinping would include passenger jets on his list.

In a warning shot back in April, China had proposed an extra 25 percent tariff on an older generation of Boeing’s 737 models that was nearing the end of its production run, but has steered clear since.

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The $12.2 trillion Asian economy, slated to surpass the U.S. as the world’s biggest aviation market by as early as 2022, is crucial to both Boeing and its European rival in their battle for dominance.

Policy makers in China could still deal a blow to Boeing by favoring Airbus for future orders. Premier Li Keqiang said in June that his government is willing to step up cooperation with Airbus.

But for now, Boeing seems to be insulated from the tensions with China, which accounted for about 13 percent of its revenue last year. It delivered 202 aircraft to Chinese airlines in 2017, compared with 176 by Airbus.

In its forecast on Tuesday, Boeing said China would need 5,730 single-aisle planes, accounting for 75 percent of total new deliveries during the next two decades. The country would need 1,620 widebody aircraft, or triple the country’s current fleet size, it said.

In August, Boeing raised its global forecast by 4 percent to 42,700 planes valued at over $6 trillion. At present, China has 15 percent of the world’s commercial airplane fleet, and that is likely to expand to 18 percent by 2037, Boeing said.

China itself is likely to join the race for commercial planes in the next couple of decades. State-owned Commercial Aircraft Corp. of China, known locally as Comac, has been conducting test flights for its C919 narrowbody jet since May last year. The company says it has racked up more than 800 orders from Chinese carriers and lessors.

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