BA Stock: Should This Terrify Boeing Stockholders?

BA StockChina is Building its Own Airliner; Is it a Challenge to Boeing Stock?

A Chinese company, run from Beijing, has unveiled the C919 airplane, its first commercial airliner. This is no small achievement considering the technical and safety hurdles such a project entails. It shows that Chinese technology will soon surpass the West’s technology. In aerospace terms, the C919 represents a direct challenge to The Boeing Company (NYSE:BA) and Airbus Group SE (ADR)’s (OTC:EADSY) dominance in the commercial aerospace sector and not just in China.

Indeed, with this move, China wants to enter the global market for passenger jets.  While it was up 4.86%, for the moment the news will not generate shocks or waves for BA stock because the C919 has not flown yet, it will take off for the first time in 2016. However, in the long term, the aircraft could prove highly competitive in the fastest-growing markets of Asia and especially Africa, where China has expanded at a tremendous pace.

For investors, there are no boundaries. They can participate in the Chinese airliner project, made by the Commercial Aircraft Corporation of China (COMAC), by investing in its U.S. partner General Electric Company (NYSE:GE) and France’s Safran SA (FP:SAF). Indeed, in the aerospace sector, many BA stockholders consider the airframe makers while ignoring the component manufacturers, especially engine makers such as Pratt & Whitney, part of United Technologies Inc. (NYSE:UTC), and General Electric.

BA Stockholders Have No Reason to Panic

China’s budding aerospace industry has no comparable domestic jet engine makers and it will have to source these from a limited pool of suppliers, which Pratt & Whitney and GE (through the partnership with SNECMA, now Safrane, known as CFM international) dominate.

The C919 is a direct competitor to the Boeing 737 and Airbus 320 families with its 159 seats. The aircraft is designed to have a huge range of over 3,000 miles, but this remains to be confirmed by the test flight in 2016 or 2017, according to Chinese newspapers. The C919 was presented at Shanghai Pudong airport in front of 4,000 people, including many Chinese government officials.

In addition to the CFM Leap-1C, the C919 will be equipped with engines developed by the state holding Chinese Aviation Industry Corporation of China (AVIC), which controls COMAC itself. Nevertheless, the Chinese engines are in the planning stage and details are unknown. Airplane engines take as many years to develop as the airplanes themselves, so none of the current manufacturers have much to worry about. Indeed, Boeing stockholders are well aware that The Boeing Company recently signed more deals to ease sales to China.

The GE, CFM engines are already being slated for use in the new Airbus A320 Neo and the Boeing 737 MAX. Essentially, GE will provide engines to the two top producers in the single-aisle aircraft market between 120 and 200 seats as well as the new Chinese competitor. The investment case is rather self-explanatory. The Airbus 320 Neo has some 4,000 orders; the Boeing 737 MAX has 3,000 orders; while the COMAC C919 has gathered 507 orders.

Here’s the Bottom Line for The Boeing Company

Despite being one of the largest airline markets by the number of airlines and flights, China has had to buy its aircraft abroad. The C919 is a symbol of the effort to substitute imports, setting the milestone for the launch of a full aerospace industry in China (design and assembly rather than just assembly, as is the case today) to create a new export item.

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