Will new commercial aviation manufacturing out of China shift future aerospace supply chains?

News Analysis




Will new commercial aviation manufacturing out of China shift future aerospace supply chains?

Newcomer to the aircraft manufacturing supply chain is the Commercial Aircraft Corporation of China (COMAC) that has debuted its narrow body C919 jet at the Singapore Airshow in January 2024. However, can the company scale-up its production capacity within the next decade to capture global market share and set itself up as a potential competitor in the existing duopoly between Airbus and Boeing?

The landscape of the modern commercial aviation industry is dominated by a duopoly between competing aircraft manufacturers Airbus and Boeing, a rivalry that has been ongoing since the 1970’s when Airbus was formed. This rivalry has driven many advancements in aircraft design and technological innovation, as the two competed for market share. However, a recent string of safety incidents involving Boeing’s 737 Max aircraft, has resulted in an industry wide discussion surrounding aviation safety regulations and the state of Boeing’s 737 Max programme. Moreover, the debut of the Commercial Aviation Company of China’s (COMAC) C919 single-aisle jet has the industry enthralled and the timing could not be better. Following successful flight testing in 2018, the company’s C919 jet has completed regulatory approval and safety certification in China in May 2022 and five C919 jets are reported to be in operation in China. Given these recent developments combined with the growing demand for aircrafts as the travel industry rebounds after the COVID-19 pandemic, what is expected for the future of commercial aviation and associated supply chains, and will Boeing’s poor safety performance ultimately result in a loss of market share to rival Airbus or newcomer COMAC?

The rise of a duopoly: A history of commercial aviation

The famous first flight of the Wright brothers in December 1903 would set the stage for commercial aviation, with the first commercial flight operating between St. Petersburg and Tampa, Florida in 1914. Throughout the next century, commercial flights became more popular as technological developments improved the speed and distance of travel. Boeing cemented itself as an industry leader after it unveiled its pioneering 707 jetliner in the 1950’s, gaining market share over its competitors. However, in 1970, Airbus was established through a consortium of European aerospace companies, which launched its A300 aircraft in 1974 as a rival to Boeing and McDonnell-Douglas. Over the next two-decades, various aircraft models combined advanced technologies, innovative designs and improved performance which allowed both Airbus and Boeing to capture a growing market share. Conversely, as Airbus and Boeing were expanding, McDonnell-Douglas was facing a decline in market share that was exacerbated by losses incurred due to manufacturing delays and cost overruns in its aircraft programmes. In a strategic move to enhance its position in the aerospace industry, Boeing acquired McDonnell-Douglas in 1997.

The two have continued to compete and innovate for market share, and in an effort to penetrate more of the growing Asian market, both companies established offices and assembly facilities in China. In 2010, Airbus announced a series of its models under the NEO brand (New Engine Option) as a modern update with improved operating performance. The NEO models received an overwhelming reaction from the industry as airlines placed large orders. In response, Boeing announced its 737 Max model in 2011, launching it commercially in 2015 as a modernised, low-cost alternative to its historic 737.   Despite the existence of smaller aircraft manufacturers such as Embraer and Bombardier, these manufacturers have not been able to scale its operations to the same level as Airbus and Boeing. Embraer has predominantly established itself in the regional jet market segment and produces smaller aircrafts for short haul routes, while Bombardier saw significant restructuring over the last decade and sale of its commercial aviation division to Airbus in 2018.

The current state of affairs: supply chain disruptions

The current commercial aviation landscape has been impacted by several noteworthy events over the last 5 years. Firstly, the grounding of the Boeing 737 Max in 2019 after two fatal crashes saw a significant impact on the Boeing supply chain as production slowed. This was further intensified at the beginning of 2024, when an Alaksa Airlines flight from Portland Oregon operating an eight-week-old Boeing 737 Max 9 experienced a door plug blow out shortly after take-off. The incident caused a temporary grounding of the 737 Max 9 models by the FAA for inspection. This event has been the first in a slew of incidents that have brought Boeing’s safety culture under the microscope. The incidents have also resulted in the FAA launching a safety probe into the Boeing production line, which have uncovered a series of safety concerns, including a recurring safety issue regarding the 737 Max model’s anti-ice system.

Short on the heels of the 2019 grounding followed the COVID-19 pandemic and the abrupt cessation of the travel industry and the commercial aviation value chain as a whole. The effects of the pandemic have had a lasting impact on the aerospace supply chain as the industry struggled to recover. This was particularly devastating to the downstream supply chain and small-scale producers that could not financially recover, causing supply chain disruptions related to parts and components. Russia has historically been a significant producer of aerospace grade titanium metal, supplying both Airbus and Boeing. However, with the initiation of the Russia-Ukraine war in 2022, aerospace grade titanium metal production has seen a decline, mostly related to a lack of raw material feedstocks that has historically been supplied by Ukraine. Although titanium is still being exported to Europe via subsidiaries, the US has implemented sanctions against Russian titanium producer VSMPO-AVISMA. The low demand created by the pandemic also impacted the US titanium sponge production, with TIMET’s Henderson plant closing in 2021, making the US wholly reliant on titanium sponge imports to feed its metal production.

China’s entry into the commercial aerospace supply chain

In 2024, the Commercial Aircraft Corporation of China (COMAC) debuted its narrow-body C919 jet at the Singapore airshow, with orders already being placed and the company reporting over 1,000 orders. The programme was initiated in 2008 as part of a strategy to reduce dependence on foreign technology and foster national pride. The development of the aircraft started in 2011, and the C919’s maiden flight took place in 2017. By May 2022, the C919 had completed regulatory approval and certification in China and the fifth C919 jet was put into operation in January 2024.

In recent years, China has started ramping up its titanium production capacity, ramping up from 30% in 2010 to account for over 60% by 2023. While the capacity is focussed on industrial applications to start, China is developing its aerospace-grade supply chains in tandem with its commercial aircraft ambitions. Additionally, China also controls the production of other minor metals such as scandium and tungsten as well as importing significant volumes of raw material feedstocks of tantalum and cobalt. However, the COMAC jet program has not come without its obstacles. Despite China’s grip on raw material supplies that are critical to the aerospace industry, the company is still reliant of western supply chains for many other components such as avionics and jet engines. This may limit its growth as geopolitical tensions could result in trade restrictions with China. In an effort to reduce its dependence on western supply chains, China has started developing its own jet engine programme. Currently, the prototype is still heavily dependent on western technologies and components, while allegations of corporate espionage and intellectual property theft has also been levelled against China and COMAC in its endeavour to successfully launch its aviation manufacturing capability.

The future of commercial aerospace

The travel industry is slowly recovering following the abrupt halt of the commercial aviation industry during the COVID-19 pandemic, and Project Blue estimates that commercial aviation will return to its 2018 high by the mid 2020’s. In terms of deliveries, we forecast the growth in aircraft deliveries to plateau throughout the 2040’s as deliveries reaches roughly 2,700 units per year, totalling to as much as 40,000 total new deliveries by 2040. Our base case sees narrow-body aircrafts dominate the market as low-cost air travel increases, while wide-body aircrafts will see a growth in market share from roughly 20% to 30% as the industry shifts to long-haul flights between regional hubs. The largest regional growth market is anticipated to be Asia, specifically China, where US-China geopolitical dynamics have resulted in a dwindling market share for Boeing. The delivery outlook still forecasts the dominance of Airbus and Boeing, however, makes room for other aircraft manufacturers to take up a small market share. This view is based on both Airbus and Boeing’s well established supply chains, manufacturing capacities, global partnerships, and existing infrastructure. Moreover, the two companies have had to navigate difficult regulatory conditions and geopolitical dynamics to institute its strong respective brand reputations.

In order for COMAC to capture large-scale global market share, many threads need to align. The company will need to focus its efforts on increasing its production capacity, which is currently small and estimated to increase to between 100 and 150 aircrafts per year over the next decade. COMAC will also need to heavily invest into building out global supporting infrastructure for the C919 Jet. In addition, the Chinese aircraft manufacturer will also need to get regulatory approvals from a host of international safety authorities such as the US FAA and the EU Aviation safety Agency. Despite many authorities voicing their concern regarding the C919 jet and its relatively new entry into the market, the most significant player in the success of COMAC may yet be China itself. Since China is poised to be the largest growth market for commercial aviation, combined with the fact that many Chinese airlines are state owned, the Chinese government may use its position to expand the regional use of the C919 jet. This would suggest that COMAC may inevitably take up Chinese commercial aviation market share from Airbus and Boeing. Additionally, China may also leverage favourable political environments to expand the market share for the C919.

As it stands, the existing aerospace supply chain does not position COMAC as an immediate threat to the existing duopoly of Airbus and Boeing. However, we anticipated that COMAC will most likely take up a portion of the Chinese market share over the next decade as it builds its capacity and advances its domestic technologies. Should China be able decrease its dependence on western supply chains and get its certification process adopted outside of its borders, combined with the fact that it controls a large portion of the aerospace raw materials supply chain, COMAC will be able to take up more of the global market share over the next decade.