Boeing is close to agreeing a deal to open a 737 jet completion and delivery center in China. It could be announced during President Xi Jinping’s Seattle visit this month.
Boeing is close to reaching a deal with the Chinese government to open a 737 jet completion and delivery center in China.
A person familiar with the details said an announcement could be made during President Xi Jinping’s visit to Seattle later this month.
Final assembly of the 737 airframes will remain in Renton, which employs about 12,000 people, about half of those production workers.
However, those jets destined for Chinese carriers — between a quarter and a third of all 737s built — will be flown empty to a new Chinese facility for installation of interiors, exterior painting, customer flight tests and delivery, according to the person familiar with the plan.
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Such a deal would create Boeing’s most significant overseas commercial-aircraft venture, granting it new leverage in the world’s biggest aviation market.
Though Boeing has long had an extensive global supply chain, this would be the first time its jets are to be finished and delivered outside the U.S.
Details such as which Chinese company Boeing will partner with, where the facility will be located and when it will open are still under discussion, said the person familiar with the plan — who asked for anonymity because the deal is sensitive until top Chinese officials are ready to announce.
Boeing’s move is closely linked to its plan to greatly ramp up production from 42 jets to 52 jets per month by 2018 and possibly higher later, he said.
That planned ramp-up depends crucially on Boeing gaining market access to China at least equal to that of Airbus, he said.
In return for airplane orders, the Chinese government requires Boeing to allow Chinese firms to collaborate in manufacturing the jets. And without orders from the Chinese carriers, the planned production ramp up won’t be possible, the person said.
Rather than layoffs, he said the overall growth in production will increase employment here.
Jon Holden, district 751 president of the International Association of Machinists (IAM) union, responded to that view with “I hope that’s the case.”
Holden said he asked Boeing about the China completion center after the news first broke early Friday in the trade magazine Aviation Week and was independently confirmed by The Seattle Times.
“We’re concerned about it. Anything that could cost IAM jobs is very critical to us,” Holden said. “If they are able to get guaranteed new orders, that could lead to building more airplanes and more people working here. But they haven’t revealed any details. It’s hard to know.”
Xi is expected to visit Seattle and to tour Boeing’s Everett factory on Sept. 23, before meeting with President Obama in Washington, D.C.
In addition to the 737 venture in China, Xi is also expected to announce new Boeing orders on his visit.
Boeing spokesman Doug Alder on Friday would say only that “Boeing is always looking for opportunities to … (work) with partners around the world, including in China.”
“That approach continues” said Alder. “However, we do not comment on options we may be exploring.”
Impact on Renton
The single-aisle 737s are assembled at Boeing’s highly efficient Renton plant, including full installation of the interiors.
After rollout some of the 737s are painted in Renton. They then fly the short hop to Boeing Field, which also has a paint facility.
After flight tests 737s are delivered from there to airline customers.
The person familiar with the plan for the new completion center in China said that facility would install seats, galleys, lavatories and interior furnishings on jets going to Chinese carriers.
That also means installing the complex inflight-entertainment systems built into the seats. Sidewalls may also be installed in China after wiring for the entertainment systems is threaded through the cabin.
When the interior is complete, the airline livery will be painted on the exterior, a process that takes about three days, followed by customer test flights and delivery.
Besides gaining access to the Chinese market, putting that work in China may help Boeing handle the higher production rates.
Through August, Boeing had delivered 73 of its 737s to Chinese airlines out of a total of 324 deliveries this year. That’s nearly 23 percent of all deliveries, and doesn’t include those going to airplane lessors that may ultimately be flown in China.
Last month, Boeing updated its annual forecast for the Chinese market. Despite the current economic slowdown there, it projected demand for 4,630 single-aisle airplanes over the next 20 years.
“China’s low-cost carriers are currently responsible for about 8 percent of single-aisle market demand, rising to 25-30 percent of demand by 2034,” Boeing stated in its forecast.
Late on Friday, China Eastern announced an order for 50 Boeing 737s for its low-cost carrier subsidiary China United, a deal worth about $2.5 billion after standard market discounts.
In the works for years
Although Boeing Chairman Jim McNerney in July threatened to move work overseas because of congressional failure to reauthorize the U.S. Export-Import Bank — which guarantees billions of dollars in financing for Boeing’s foreign jet sales — the plan for a Chinese completion center was in the works long before that controversy arose.
The person familiar with the plan said Boeing and the Chinese government have been discussing a joint manufacturing project for several years and both sides zeroed in on the completion center as the preferred facility over the last two years.
The deal is likely to come to fruition now because it’s so tightly tied to the planned production rate increases.
The Chinese facility is expected to ramp up slowly and to be at capacity in time for Boeing’s peak production in 2018 and beyond.
The 737 completion center will significantly extend work currently done for Boeing in China.
Chinese suppliers already make the 737’s horizontal tail, vertical fin, the aft tail section, doors, wing panels, wire harnesses and other parts.
Also made in China are 747 wing and tail parts, and the 787 Dreamliner’s rudder, wing-to-body fairing panels, leading edge and panels for the vertical fin, and other composite parts.
Boeing competitor Airbus has had a final A320 jet assembly line in Tianjin, China, since 2008. The plant employs about 500 workers, assembling four aircraft per month.
In July, Airbus also agreed to open a completion center in Tianjin for its A330 widebody airplanes, where jets destined for Chinese carriers will have their cabin interiors installed and be painted.