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Boeing Thinking about More 737 Work In China, US Jobs Unhurt

Boeing Co.BA has plans to move some of its 737 finishing work to China considering that the country is one of the fastest growing aviation markets. Although the aerospace giant sees scope for additional 737 work going to China as it boosts production rates of this single-aisle jetliner, the company will ensure that changes would not come at the expense of U.S. jobs.

The company is all set to announce its first plant outside the U.S. to mark the visit of President Xi Jinping to Seattle today. Boeing Commercial Airplanes Chief Executive Ray Conner conveyed to the employees that the company is considering a strategic partnership with China.

This move of setting up facilities outside the U.S. is a departure from the company's earlier stance. Boeing had emphasized on acquiring components from local partners. However, the change in approach speaks of intensifying competition in the industry where international diversification becomes essential.

Ray Conner further added that China is Boeing's largest international market accounting for one in four deliveries this year. More than half of the commercial airplanes operating in China today are Boeing jets.

However, Boeing's European arch rival Airbus has been speedily gaining market share in China ever since it launched a final assembly unit there in 2008. Again, it is planning for a Chinese completion center this year to complete the cabin fitting of twin-aisle A330s sold to Asian clients. Airbus' A320neo and Boeing's 737 MAX are currently in head-to-head competition.

China - which is set to become the world's largest domestic air travel market within the next two decades − is enthusiastic about expanding its own commercial aviation industry. In Jun 2015, China signed a landmark order for 45 A330 wide-body jets with Airbus in an $11 billion deal at list prices. Further, the country has plans to add 30 more aircraft worth about $250 million each.

Both the aviation behemoths are eager to grab a major market share in the fastest growing Chinese market. Boeing, in its recently released annual China Current Market Outlook, projected that China's commercial aircraft fleet will nearly triple over the next 20 years, from 2,570 aircraft in 2014 to 7,210 in 2034.

Apart from gaining market share in the Chinese market, Boeing's vow for a completion center will ease the pressure on its U.S. operations. Boeing has plans to boost 737 output to 52 airplanes per month in 2018 from the existing 42 and from a planned level of 47 in 2017 to meet growing demand.

Demand for Boeing's commercial airplanes is on the rise owing to the steady improvement in passenger and freight traffic especially in the emerging markets. In its recently released outlook, Boeing anticipates the commercial fleet to double over the next two decades to 43,560 airplanes, fueled by sustained 4.9% annual growth in commercial passenger traffic.

Zacks Rank

Boeing currently has a Zacks Rank #2 (Buy). Other equally well placed stocks in the same space include Lockheed Martin LMT , Northrop Grumman NOC and Engility Holdings, Inc. EGL , all with the same rank as Boeing.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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