Huawei offers blueprint for China’s challenge to Boeing-Airbus duopoly

Tim Culpan

China’s plans to challenge Boeing and Airbus in the global passenger-jet market face plenty of hurdles as the nation tries to establish its credibility in a complex, highly interconnected sector. These challenges are not insurmountable.

Commercial Aircraft Corporation of China, better known as Comac, is the state-owned maker of planes. At the Singapore Air Show last week, it showed off its C919 as a rival to Airbus’s A320 and Boeing’s 737. The narrow-body model, designed for short and medium-distance routes, has been embraced by local airlines including China Eastern Airlines.

An order announced at the show by China’s Tibet Airlines for 40 of those aircraft shows it’s gaining traction, but only at home. It needs more foreign buyers if Comac is to establish its credibility and ensure long-term viability.

Now would be the perfect time to make its move. Recent safety concerns at Boeing, ranging from avionics to structural integrity, have overshadowed the US company’s storied history. A decade earlier, Europe’s Airbus was in the spotlight after fatal crashes were linked to faulty sensors and systems.

The overseas success of communications-equipment supplier Huawei Technologies shows an unproven upstart can penetrate highly-entrenched industries, as long as the company has the right ingredients and strategy. That it was subsequently banned from many international markets indicates it have may have become too good, triggering backlash among leaders amid rising trade and political tensions.

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Founded in 1987, the unlisted Shenzhen-based company gained traction in the 1990s by building telephone switches to meet growing demand from domestic government and private enterprises. By the end of the decade, Beijing had a policy of boosting home-grown businesses over foreign rivals. 

The origin stories of Huawei and Comac are similar. Although the former is not state-owned, both benefit from serving explicit national interests, allegedly sourcing their early technology through espionage and intellectual-property theft, and continuously securing local orders at the expense of arguably superior foreign alternatives.

Yet Huawei’s global success cannot be purely ascribed to stolen secrets and government protectionism. Its subsequent momentum overseas serves as a blueprint for how Comac may win long-term orders. 

The first step will be to compete on price. Huawei’s initial sales proposition was to offer cheaper alternatives to established names like Ericsson, Siemens, Nokia, Nortel Networks and Lucent Technologies – most of which no longer exist in their original form.

Smaller telecom carriers in developing markets like Africa and the Middle East, seeking to save costs and build out second and third-generation networks, found Huawei irresistible. Financial and political support from Beijing helped the Chinese company undercut rivals. Comac will need to follow that same path to get its foot in the door.

What happened next at Huawei, though, is the true key to its longevity. Building and operating a communications network requires significant engineering resources and ongoing maintenance. This is complicated and costly, so the Chinese vendor made it easier and cheaper by taking on much of that burden. Once entrenched in client networks, it became harder to be displaced by bigger, more-expensive rivals.

Comac’s path forward ought to be similar. Simply selling cheaper planes won’t be enough for it to win over clients, even at cost-conscious carriers. An equally valuable benefit it could provide is low-priced, or even free, after-sales maintenance and support. Instead of airlines running their own teams of licensed aircraft maintenance engineers, Comac can offer its own people who’d be even more proficient in understanding its planes. 

It can take that idea further, with initial and ongoing training of cockpit crew. A global pilot shortage is likely to last years and remains one of the biggest risks to airlines keeping flights running on schedule. Yet recruiting and keeping aviators is difficult and expensive, made more challenging by the limited cross-over between aircraft types. A pilot licensed to fly a Boeing can’t easily swap to an Airbus, while even switching from one variant to another requires expensive and time-consuming retraining.

Airlines, especially smaller carriers in developing markets, won’t be keen on having their flight crews committed to an entirely new set of avionics and systems. But if Comac trains the pilots itself, or even offers a guaranteed supply of qualified personnel, then its planes will be far more attractive to buyers. Like Huawei, Comac’s strategy ought to be a one-two punch consisting of cheaper upfront purchases coupled with competitively priced ongoing services that make it hard to replace over the long term.

None of this guarantees success. Huawei’s overseas expansion ground to a halt, and was even reversed, as the US and allies started questioning the safety of its networks amid increasing tensions. Comac will likely face similar resistance on national security grounds. Regulators in the US and Europe may well keep the Chinese company from their skies, citing safety or security concerns, but with the global air transport market worth US$800 billion annually, and most future growth coming from regions within Africa, Latin America and Asia, there’s not much to lose.

The duopoly of Airbus and Boeing is ripe for challenge, and Comac could be the one to finally break it up. BLOOMBERG