China Refuses to Accept Boeing Planes Due to US Tariffs

Rewritten Article:

In an interview with CNBC, Boeing CEO David Calhoun admitted that Chinese buyers have ceased ordering aircraft due to the trade tension-induced tariff environment. He suggested that if this trend persists, Boeing might consider marketing the jets to other carriers.

President Trump's trade wars with China and other nations cast a shadow of uncertainty over Boeing, a significant U.S. exporter. Despite reporting positive results on Wednesday, the trade fracas with China remains a concern.

Calhoun anticipated delivering approximately 50 aircraft to China in 2025. However, due to the tariffs, he stated that they wouldn't "wait too long" to sell the jets to other interested parties.

"I'm focused on moving the company forward, and I won't let these challenges derail our progress," Calhoun said. "We'll give those planes to our customers if they choose to take them. If not, we'll resell them."

The comments come amid optimistic talks about a trade agreement between Trump and top administration officials. Yet, Treasury Secretary Janet Yellen stated that the U.S. is yet to negotiate with China about tariffs.

Boeing's interactions with the White House regarding trade have been dynamic, according to Calhoun, during a conference call with analysts. He admitted, however, that he couldn't predict the outcome of the trade negotiations, as "we only hear signs of possible settlements, but I can't say when."

Calhoun wants to prevent other nations from facing a similar situation as China, emphasizing the importance of avoiding additional trade conflicts.

Boeing minimized the impact of Trump's tariffs, stating that steel and aluminum account for just one or two percent of aircraft costs, with most materials sourced domestically. Boeing can recover custom duties on certain goods when they export the taxed item through a US duty drawback program.

Financial Results

Boeing reported a loss of $123 million in the first quarter, a decrease from the $343 million loss in the previous year, alongside an 18 percent rise in revenues to $19.5 billion.

In the earnings release, Boeing confirmed plans to raise commercial plane production while enhancing safety measures following a series of devastating incidents, including fatal crashes. The company aims to increase 737 MAX production to 38 per month in 2025, while boosting 787 Dreamliner output to seven per month from the current five. Boeing still anticipates the first delivery of the 777-9 in 2026.

Boeing's cash burn in the first quarter stood at $2.3 billion, lower than the anticipated $3.7 billion impact on free cash flow, according to TD Cowen analysts.

On Tuesday, Boeing announced plans to sell portions of its digital aviation solutions business to software-focused investment firm Thoma Bravo for $10.6 billion, aiming to strengthen its financial position.

Calhoun hinted at additional asset sales of a smaller scale than the deal with Thoma Bravo, which encompasses Jeppesen, an 81-year-old aviation navigation company that Calhoun led before his Boeing appointment.

Calhoun joined Boeing last summer after a leadership change following a January 2024 Alaska Airlines flight's emergency landing due to an in-flight panel explosion. Prior to that, there were deadly crashes on the 737 MAX in 2018 and 2019 in Indonesia and Ethiopia.

To regain the trust of lawmakers and customers, Boeing has been implementing quality control enhancements under the watchful eye of federal regulators.

"Our company is on the right path as we witness improved operational performance across our businesses due to our unwavering focus on safety and quality," Calhoun stated in a press release. Boeing led the Dow index on Wednesday, rising six percent.

Smaller Loss

After posting a loss of $123 million in the first quarter, down from $343 million in the previous year, Boeing's revenues surged by 18 percent to $19.5 billion. In its earnings release, Boeing affirmed goals to boost commercial aircraft production while reinforcing its safety efforts following a series of critical incidents.

The company remains committed to increasing 737 MAX production to 38 per month in 2025, and the output of the 787 Dreamliner to seven per month from the current five. Boeing continues to anticipate the first delivery of the 777-9 in 2026.

Boeing also reported a cash burn of $2.3 billion, better than the predicted $3.7 billion hit to free cash flow, according to analysts at TD Cowen.

Enrichment Data:

Overall:The ongoing trade disputes between the U.S. and China pose a significant challenge to Boeing's future sales in China, with potential implications for aircraft delivery schedules and revenue streams.

Current Situation

Trade Tensions and Aircraft Deliveries: Boeing CEO David Calhoun admitted that Chinese buyers have ceased accepting new delivery of aircraft from Boeing due to the U.S.-China trade disputes. This has led to China returning two of the three aircraft ready for delivery, prompting Boeing to reassess its export strategy to China[1][3].
Planned Deliveries to China: Initially, Boeing had planned to deliver about 50 aircraft to China this year. However, due to the trade disputes and China's decision to impose tariffs, these deliveries are now in jeopardy. China's tariffs could more than double the cost of passenger jets, making them less competitive or even unfeasible for Chinese carriers[2][3].
Remarking and Redirecting Aircraft: Boeing is adopting a practical approach to deal with the situation. For aircraft that have not yet been built, Boeing plans to redirect them to other customers. For completed aircraft, the company will engage in remarketing efforts to sell these planes to other carriers interested in the 737 Max aircraft[1][2].

Potential Impact on Boeing's Sales

Financial and Production Implications: The halt in deliveries to China could negatively impact Boeing's cash flow, as the 737 Max is a key revenue generator for the company. Boeing has been working to increase production of the 737 Max cautiously after facing manufacturing quality issues and a recent strike affecting its operations[1].
Market Opportunities and Challenges: Despite the challenges posed by the trade tensions with China, Boeing sees opportunities in redirecting unsold aircraft to other markets. The demand for Boeing's aircraft remains strong globally, which could help mitigate some of the financial impacts from lost sales in China[2].

Future Outlook

Strategy Adjustments: Boeing is likely to continue its efforts to balance exports with domestic production needs, focusing on maintaining strong relationships with other global customers while navigating the complex geopolitical environment.
Recovery Plans: The company's ability to find new buyers for the impacted aircraft will be crucial in maintaining its production levels and revenue targets. This requires a robust sales network and strategic partnerships with airlines worldwide.

Overall, the ongoing trade conflicts present both challenges and opportunities for Boeing, as it must navigate complex international trade dynamics while ensuring the success of its core aircraft programs.

[1] https://www.reuters.com/business/aerospace-defense/boeing-warns-china-tensions-threaten-capacity-improvement-plan-2021-10-27/[2] https://www.bloomberg.com/news/articles/2021-10-27/boeing-warns-china-tensions-threaten-capacity-improvement-plan[3] https://www.wsj.com/articles/boeing-warns-investors-that-china-tensions-threaten-capacity-improvement-plan-11635627413

In light of the current trade tension-induced tariff environment with China, Boeing may redirect its aircraft, initially intended for Chinese buyers, to other interested parties due to a halt in orders.
With the potential obstacles posed by tariffs in the environment, Boeing CEO David Calhoun aims to prevent other nations from facing similar situations, emphasizing the importance of avoiding additional trade conflicts.
To mitigate the financial impacts from lost sales in China, Boeing will engage in remarketing efforts to sell the 737 Max aircraft to other carriers worldwide, as demand for its aircraft remains strong in global markets.
The impact of President Trump's tariffs on Boeing's costs is minimal, as steel and aluminum account for just one or two percent of aircraft costs, with most materials sourced domestically. Boeing can recover custom duties on certain goods when they export the taxed item through a US duty drawback program.