Boeing braces for trade war headwinds in China

At Airshow China, the president of Boeing China said that the company was “confident” that dialogue would resume between US and Chinese negotiators. (AFP)
Updated 08 November 2018
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Boeing braces for trade war headwinds in China

  • While Boeing has so far escaped the rounds of tit-for-tat tariffs, analysts say it is at risk of being the next victim if the trade war escalates
  • Tariffs would bite deep for the Chicago-based company as China — the world’s second biggest aircraft market — represents one fifth of its global orders

ZHUHAI: At China’s biggest air show, a top Boeing executive voiced hope that the US and China would resume trade talks. He has reason to worry: The US aerospace giant could fly into turbulence in a protracted commercial conflict.
While Boeing has so far escaped the rounds of tit-for-tat tariffs, analysts say it is at risk of being the next victim if the trade war escalates, which would benefit its European rival Airbus.
Tariffs would bite deep for the Chicago-based company as China — the world’s second biggest aircraft market — represents one fifth of its global orders.
At Airshow China in the southern city of Zhuhai, the president of Boeing China, John Bruns, said that the company was “confident” that dialogue will resume between US and Chinese negotiators.
“A healthy airspace industry is in the best interests of both countries,” Bruns said at a news conference on Tuesday on the sidelines of the exhibition, where companies are showing off their latest planes, helicopters and drones this week.
While Boeing’s large planes have avoided tariffs, China has other ways to hurt the company, just as it battles Airbus for bigger shares of the massive market.
“The retaliation would mainly be in the form of canceled orders with a redistribution to Airbus, perhaps as much as 30-40 percent of the existing order book,” said Vinay Bhaskara, a senior business analyst for Airways Magazine.
“At the current moment, I give perhaps a 25 percent chance of this scenario where China cancels Boeing orders wholesale,” Bhaskara told AFP.
The trade war comes at a particularly awkward time for Boeing, which announced last year it had won a major contract worth about $38 billion to sell 300 aircraft to China.

 

In a worrisome signal, China’s Xiamen Airlines — a company that has bought exclusively from Boeing for three decades — is in talks with Airbus, according to Bloomberg News.
“This could be very good news for Airbus. It might just allow them to get to their rumored goal of 70 single aisle (A320) jets per month,?” said Richard Aboulafia, an aviation industry analyst at US consultancy Teal Group.
China is expected to surpass the US as the world’s biggest aircraft market in the mid-2020s, according to the International Air Transport Association. Boeing delivered 202 aircraft in China last year, beating Airbus, which sold 176.
Despite his rival’s potential woes, the head of Airbus China, Xu Gang, was also worried by the prospects of more tariffs. “I think nobody will be the winner of this kind of trade war,” Xu said, adding that his company welcomes dialogue between the US and Chinese governments.
“The trade war damages the trade relationship, which also damages a lot of commercial expectations of many private companies, and this will cost a lot of employment” and hurt salaries of the middle-class. This, of course, will have a negative impact on the aviation growth.”
Airbus would not necessarily have much to celebrate if China dropped Boeing orders.
“Airbus’ order book is backlogged for several years, so it doesn’t stand to gain from any challenges which Boeing may face,” said John Strickland, aviation analyst and director of JLS Consulting in London.

FASTFACTS

China is expected to surpass the US as the world’s biggest aircraft market in the mid-2020s, according to the International Air Transport Association.


BMW plans massive cost cuts to keep profits from sputtering

Updated 20 March 2019
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BMW plans massive cost cuts to keep profits from sputtering

  • ‘Our business model must remain a profitable one in the digital era,’ chief executive Harald Krueger said
  • Total number of employees is set to remain flat at around 135,000 worldwide

MUNICH: German high-end carmaker BMW warned Wednesday it expects pre-tax profits “well below” 2018 levels this year as it announced a massive cost-cutting scheme aimed at saving $13.6 billion (€12 billion) in total by 2022.
A spokesman said that “well below” could indicate a tumble of more than 10 percent.
The Munich-based group’s 2019 result will be burdened with massive investments needed for the transition to electric cars, exchange rate headwinds and rising raw materials prices, it said in a statement.
Meanwhile it must pump more cash into measures to meet strict European carbon dioxide (CO2) emissions limits set to bite from next year.
And a one-off windfall in 2018’s results will create a negative comparison, even though pre-tax profits already fell 8.1 percent last year.
Bosses expect a “slight increase” in sales of BMW and Mini cars, with a slightly fatter operating margin that will nevertheless fall short of their 8.0-percent target.
“We will continue to implement forcefully the necessary measures for growth, continuing performance increases and efficiency,” finance director Nicolas Peter said at the group’s annual press conference.
BMW aims to achieve €12 billion of savings in the coming years through “efficiency improvements” including reducing the complexity of its range.
“Our business model must remain a profitable one in the digital era,” chief executive Harald Krueger said.
This year, most new recruits at the group will be IT specialists, while the total number of employees is set to remain flat at around 135,000 worldwide.
Departures from the sizeable fraction of the workforce born during the post-World War II baby boom and now reaching retirement age “will allow us to adapt the business even more to future topics,” BMW said.
All the firm’s forecasts are based on London and Brussels reaching a deal for an orderly Brexit and the United States foregoing new import taxes on European cars.
“Developments in tariffs” remain “a significant factor of uncertainty” in looking to the future, finance chief Peter said, adding that “the preparations for the UK’s exit from the EU will weigh on 2019’s results as well.”
In annual results released ahead of schedule last Friday, BMW blamed trade headwinds and new EU emissions tests for net profits tumbling 16.9 percent in 2018, to €7.2 billion.