Boeing set to deliver first 737 jet from completion center in China

Though China’s trade relationship with the U.S. faces an uncertain New Year under threat of increased tariffs, Boeing is all-in as it maneuvers to maintain a hefty share of what will soon be the biggest airplane market in the world.

Saturday morning in China (late Friday in Seattle) Boeing will deliver the first airplane from the 737 jet completion and delivery center in Zhoushan – a big new facility on China’s eastern coast that was promised to Chinese President Xi Jinping on his fall 2015 visit to Washington state.

Boeing will hand over a 737 MAX to Air China in a ceremony attended by Commercial Airplanes boss Kevin McAllister and sales chief Ihssane Mounir, along with Air China representatives and Chinese aerospace executives.

A third of the 737 jets assembled in Renton go to Chinese airlines, and two weeks ago a 737 MAX for Xiamen Airlines became the 2,000 Boeing airplane delivered to a Chinese operator.

The plan is that soon as many as 100 planes a year destined for China – like the one delivered to Air China – will be flown across the Pacific unfinished and unpainted and completed at the newly built 100-acre complex on Zhujiajian Island, adjacent to the Zhoushan airport.

Boeing insists that there will be no contraction of work at the Renton assembly plant and that moving the completion work to China will free up capacity in Renton to allow a faster build rate. The production rate in Renton is at a record 52 jets a month but is set to rise next year to 57 a month.

At the Zhoushan completion center, in three high-ceilinged bays covering 201,000 square feet, mechanics will install interior fixtures in the 737s, including passenger seats, lavatories and galleys. In three adjacent paint hangars, covering another 215,000 square feet, the planes will have their exteriors painted with the airline liveries.

This part of the facility is a joint venture with the state-run Commercial Aircraft Corp. of China, or COMAC, with Boeing investing $33 million and COMAC $22 million, according to the state-run China Daily.

The separate 156,300-square-foot airplane-delivery center, where the Chinese airlines will pick up their jets, is staffed and operated entirely by Boeing.

The interiors installation work will be transferred from Renton to Zhoushan in phases. When the facility is fully operational, Boeing anticipates it will employ about 300 people.

With this facility, Boeing is outsourcing a new level of work to China.

The Chinese aerospace-manufacturing industry already supplies parts for every Boeing jet, including the 737 MAX, 777 and 787 Dreamliner. Chinese suppliers make horizontal and vertical tails, doors, wing panels and wire harnesses for the 737.

One Boeing joint venture in Tianjin with a state-owned Chinese company manufactures composite structures and another in Shanghai operates an aircraft maintenance and repair facility.

Boeing places this work in China to open up access to what is set to overtake the U.S. as the world’s largest aviation market. Boeing forecasts that over the next 20 years, China will need almost 7,700 new aircraft.

But Boeing, unlike European rival Airbus, has until now resisted a joint venture doing any assembly work on its airplanes.

Airbus assembles in Tianjin just over 50 narrowbody A320s per year, jets that compete with the 737. The Tianjin plant delivered its first A320 in 2009, and in September Airbus expanded the complex to include a completion and delivery center for its widebody A330 jets.

These plants advance aircraft-manufacturing capabilities within China, which is developing its own aerospace industry. COMAC’s narrowbody C919 jet, about the size of a 737, is supposed to enter service in 2021. And China has signed an agreement with Russia to develop a larger widebody jet.

In recent years the Chinese government has equitably balanced orders from Airbus and Boeing. The Trump administration’s threat of tariffs risks upsetting that balance, at least in the short term.

Bloomberg reported that Xiamen Airlines, an exclusive operator of Boeing jets for more than 30 years, recently held talks with Airbus.

On the other hand, if a new trade deal is reached with China to avoid a trade war, it’s likely to include some large purchases of U.S. goods, which could trigger a Boeing order.

As Boeing woos Chinese favor with its new Zhoushan facility, it’s also lobbying in the U.S. for just such a deal.

In an interview on CNBC on Dec. 6, Boeing CEO Dennis Muilenburg said a new U.S.-China trade pact can likely be worked out because China needs the airplanes to continue developing its economy while the U.S. needs the manufacturing jobs sustained by that demand.

“Both sides are highly motivated to find a solution,” Muilenburg said.