SOURCE / ECONOMY
China steps up pressure on Boeing as US continues to escalate trade war
Published: May 22, 2019 03:02 PM
Major Chinese airlines on Wednesday took what appears to be a concerted effort to demand compensation from US aircraft manufacturer Boeing Co for losses they endured for grounding the flawed Boeing 737 MAX aircraft after two deadly crashes.

Coming at a time when the US has consistently escalated its trade and technology battle with China by targeting more Chinese tech firms, the move by Chinese airlines could signal that Chinese authorities might seek to put pressure on US corporations like Boeing in retaliation for US actions, analysts said on Wednesday.

Air China and China Southern Airlines announced that they have formally asked Boeing for compensation for losses caused by grounding the problematic 737 MAX planes as well as delayed delivery of more aircraft, according to media reports.

The two airlines followed similar steps taken by China Eastern Airlines on Tuesday, which became the first Chinese airline to seek compensation from Boeing for losses. In a statement to the Global Times on Tuesday, China Eastern said it has endured "relatively huge" losses, which were continuing to snowball.

Since Chinese authorities ordered airlines to ground the Boeing 737 MAX jets over safety risks on March 11, a dozen Chinese airlines have grounded a total of 96 jets. Air China grounded 15, China Southern grounded 24 and China Eastern grounded 14.

Industry insiders have said that other Chinese airlines could take similar steps soon, especially as the China-US trade war continues to escalate, with US officials constantly raising stakes by going after Chinese companies.

The US has moved to bar Chinese tech firm Huawei from accessing US components, and US officials were reportedly considering blacklisting as many as five Chinese surveillance equipment providers.

That could leave Chinese officials with no option but to strike back by putting pressure on big US companies that rely on the Chinese market, analysts said.

"China seems to be ready now to put more pressure on Boeing as the company happens to have a genuine safety issue, and the trade friction between the US and China started to go into a downward spiral," Shen Yuxin, a partner from the law firm Freshfields Bruckhaus Deringer, told the Global Times. 

Analysts pointed out that given the massive orders Chinese airlines have with Boeing, both completed and outstanding, it would be hard to cut ties with the US firm, but there are many ways to exert pressure, such as reducing or stopping new orders.

Also the compensation claims by Chinese airlines would also help put huge pressure on Boeing. One insider said that the cost of grounding a Boeing 737 MAX each month is estimated to be as high as 10 million yuan ($1.45 million), though the insider said the exact cost would be hard to calculate considering all the different factors involved. 

The insider, who spoke on the condition of anonymity, said that the timing of the demand for compensation from Chinese airlines might have been well planned. "If the trade talks did not go sour, I don't think they would seek compensation this early," the insider told the Global Times on Tuesday.