Boeing Frontiers
December 2002/January 2003
Volume 01, Issue 08
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Main Feature

30 Years and Counting


In China, long-standing relationships and old friendships—whether among families or corporations or governments—make all the difference. Because in the end, people do business with people—and companies—they like. Respect. And trust.

And for the past 30 years, Boeing and China have developed a mutually beneficial partnership, one that's withstood changing political environments and seismic economic shifts. And it's a solid partnership that Boeing Commercial Airplanes—as well as newer company business units such as Air Traffic Management—hope to continue well into the future.

30 Years and CountingOver the years, Boeing's friendship has translated into ardent support for China's accession to the World Trade Organization, a goal achieved in 2001. This trade status has been monumental for the People's Republic and for Boeing, the United States' largest exporter.

''Having China as part of the world trade system. Operating on the same basic rule set, moving their economy to be in concurrence with that rule set, and developing a rule of law are all major attributes of their ability to be part of a robust world economy,'' said Boeing Chairman and CEO Phil Condit.

On Dec. 3, Commercial Airplanes hosted a 30th anniversary celebration dinner in Beijing in honor of the past three decades. Former U.S. Secretary of State Henry Kissinger —who made a historic secret visit to China back in 1971—attended the event, as well as Washington Gov. Gary Locke and about 150 Chinese government officials, airline customers and industrial partners. Paying homage to the past, Boeing management presented Chinese leaders with a painting that depicts past and present Boeing chairmen and Chinese officials interacting with each other. And in a nod to the future, Commercial Airplanes President and CEO Alan Mulally introduced David Wang as the newly appointed president of Boeing-China.

''David Wang has an impressive combination of country and business expertise that makes him well-qualified to lead our endeavors in China,'' said Mulally. ''As we continue to work closely with the Chinese aviation authorities, Chinese airlines, and many Chinese industries and communities toward common goals, together we can achieve many accomplishments that will last beyond the next thirty years.''

The company calls it ''working together.'' Chinese aviation leaders have termed it a ''profound friendship.'' But whatever it's called, this 30-year relationship has paid dividends for both sides—and in ways that go far beyond the exchange of dollars and delivery of metal.

* * *

U.S. President Richard M. Nixon took a groundbreaking trip on Air Force OneThe year was 1972. In February, U.S. President Richard M. Nixon took a groundbreaking trip on Air Force One—then a Boeing 707—which would prove instrumental to Boeing's future relationship with the People's Republic of China. During the trip, Nixon met with Chairman Mao Tse-tung and Premier Chou En-Lai and visited several Chinese cities. That same year, the Civil Aviation Administration of China ordered 10 new 707s, beginning the shift from a largely Soviet-built commercial fleet to a Western one—and establishing the governmentrun CAAC as a major player in aviation.

From the start, a partnership between the Seattle-based airplane maker and China emerged. As the first Chinese 707s were taking shape, the CAAC sent members of its technical staff to Puget Sound for training. By the time Boeing delivered the first airplane in May 1973, the CAAC and Boeing had discovered the value of what's come to be known as ''working together.''

''China had few commercial airplanes, airports and supporting infrastructure in 1972 when they ordered their first Boeing 707s,'' said Fred Howard, the newly appointed vice president of Commercial Airplanes Asia/Pacific Sales who headed Boeing- China for the past three years. ''It was in our mutual [interest] to help accelerate the development of this infrastructure. This enabled Boeing to deliver airplanes sooner.''

Even back then, said Larry Dickenson, Senior Vice President–Sales for Boeing Commercial Airplanes, ''the company exhibited great vision, seeing the potential of this vast market. We like to say, 'Boeing went to China in February 1972 with President Nixon and Dr. Kissinger on Air Force One.'''

In 1976, the CAAC ordered 747s—and three years later, then-Chinese Premier Deng Xiaoping visited 747 and 737 assembly plants in Everett and Renton, Wash. The landscape was starting to shift, as China and the United States formally established diplomatic relations in 1979 and Deng Xiaoping began transforming his nation's economy, making it a worldwide force. The previously closed economy began growing at an amazing rate, and its aviation needs expanded simultaneously.

Again, the importance of relationships took center stage. As it would continue to do into the future, Boeing went to bat on its partner's behalf, lobbying for ''Most Favored Nation'' trade status for China, which ensured the country equal commercial opportunities with the United States, especially concerning import duties and freedom of investment.

This led to further development of the country's aviation industry—and the delivery of the first Boeing 747 in 1980.

* * *

Boeing China president announced

What better day to introduce the new president of Boeing-China than on the recent 30th anniversary event held in Beijing?

At the gala, Boeing Commercial Airplanes President and CEO Alan Mulally officially presented David Wang, who will be responsible for all Boeing business activities in the People's Republic of China, making him the 10th country or regional executive the company has appointed to lead an international office in the past year.

David WangWang—who also holds the title of vice president (International Relations)—replaces Fred Howard. Boeing has appointed Howard to the new position of vice president, Boeing Commercial Airplanes Asia/Pacific Sales. Howard will be based in Hong Kong, while Wang will operate from the Boeing-China headquarters in Beijing. Wang joins Boeing from General Electric, where he most recently served as chairman and chief executive officer of GE China. Having lived and worked in China for more than seven years, Wang is fluent in English, Mandarin, Shanghai and Cantonese.

''David will bring close contacts from all across China in government, industry, and the media,'' said Tom Pickering, Boeing senior vice president of International Relations. And, Pickering said, Boeing-China ''already has a wonderful staff in place, heavily made up of Chinese citizens.''

One of Boeing's most important markets, China also has the potential to become one of the world's largest economies thanks to its growing prosperity and expanding global role. Wang says that China ''will be looking for not only a supplier, but a long-term partner for growth.

''Thus, Boeing-China is best positioned to take up this role, and with the partnership we will be rewarded with a significant share of China's market.''

Wang, who was born in Fujian Province, China, has high expectations for China's growth. And he's excited about how Boeing has helped shape this rapidly changing landscape.

He says that the development of China's aviation industry—an industry Boeing helped shape in partnership with the Civil Aviation Administration of China—and its resulting infrastructure has helped spur ''the development of a middle class and growing prosperity inside of China, and a stable trade partner and growth market for those outside.''

''We can be rightfully proud of the role we played in the growth of this significant member of the world community.''

—Maureen Jenkins

Over the past three decades, Boeing and China have teamed up to develop the country's aviation infrastructure. In the mid-'80s, for example, the Civil Aviation Institute in Tianjin and Boeing created training programs for maintenance technicians. In order to facilitate repairs, Boeing helped develop the Beijing Capital Airport Spares Center. And Boeing, the CAAC, and the Aviation Industries of China joined forces to begin intensive training of pilots, technicians and support staff.

Increased growth of Chinese airlines— and the number and frequency of their flights—led to greater demands on the country's air traffic system. Between 1990 and 2001, Boeing invested more than $300 million to help China—one of its largest customers—develop and expand its air transportation system. The company also used its experience to help the CAAC draft its federal aviation regulations.

''As the system grows,'' said Dickenson, who formerly served as Asia/Pacific vice president for Boeing Commercial Airplanes Group, ''if they don't have the infrastructure, they can't take the airplanes.''

Today, he said, Boeing has about 70 percent of the commercial airplane market in China, with European-based Airbus holding about 20 percent. Airlines based in the People's Republic currently fly nearly 400 Boeing airplanes—and the CAAC has announced plans to replace its aging jets.

''Business is done very much on the relationship you've established with people,'' said Barbara Beyer, president of AVMARK, a global aviation consulting firm. She believes Boeing's 30-year commercial aviation history with the People's Republic of China puts the company in good position to benefit from the massive growth forecast for this nation's economy, ''just simply because the relationship has been established for so long. And stability is very important.

''If the Chinese are happy with the relationship with Boeing,'' said Beyer, who in 1988 opened AVMARK's first Asian office in Hong Kong, ''they'll continue to buy the product. They know the product; they know the salespeople.''

And while the world economy is expanding at about 3 percent annually, Chinese officials said theirs is speeding along at about 8 percent.

''If you apply that economic growth to a population of more than 1.3 billion,'' Dickenson said, ''you can speculate there's a huge market out there, and indeed there is.''

AVMARK senior consultant and Avmark Aviation Economist associate editor Daniel Solon believes ''the commercial aviation sector is likely to be one of the better growth sectors within the Chinese economy over the next 10-plus years.

''The physical expanse of China, its rugged terrain in many regions, and the absence (de facto) of an extensive road and rail system mean that the national dependence on air transport can only continue and grow for quite some years to come,'' he said. China is currently the world's second largest domestic air cargo market after the United States, with an expected 10.3 percent annual growth.

Boeing's ''2002 China Current Market Outlook'' recently forecast that the world's most populous nation will need more than 1,900 jetliners over the next 20 years. Boeing projects that during this time, China's air traffic market, which is growing at 7.6 percent each year, will be the largest commercial aviation market outside the United States. Boeing expects the nation to be a key driver in the world's overall air cargo traffic growth.

Obviously, China—a country that contains about one-fifth of the world's total population—is a prize customer for any global corporation.

''Because we have been working with the Chinese for 30 years,'' Dickenson said, ''we're uniquely positioned to be part of the economic growth in China.''

* * *

Old friendships, as well as business partnerships, are two-way streets. China's embrace of Boeing airplanes—and normalized relations between the United States and the People's Republic—helped bring Chinese aviation suppliers into the global manufacturing mix. Today, said Boeing Chairman and CEO Phil Condit, about 3,000 Boeing airplanes are currently flying with major parts and assemblies produced in China.

''The Boeing strategy is based on mutual benefits for China and Boeing,'' Howard said. ''One of our commitments was to help develop the commercial aviation industry. This has allowed Boeing to garner market share and help develop value-based suppliers.''

Adopting many of the Lean manufacturing practices companies around the world use, Chinese-owned factories such as the Xi'an Aircraft Company currently supply vertical fins for the 737 and trailing edge ribs for the 747. The Shenyang Aircraft Corporation, in another example, builds 757 cargo doors, 737 tail section parts, and 717 engine parts.

Condit currently serves as chairman of the United States-China Business Council, which is composed of American companies that engage in trade and investment with the People's Republic. Back in 1973, Boeing became a founding member of the Council. Condit believes that Boeing's familiarity with China—and with doing business in this nation—helped make the case for the country's accession to Most Favored Nation trade status, first to the U.S. Congress and then to the WTO.

''With China's accession to the WTO, we will be able to work even more closely to strengthen the aviation infrastructure of this great country,'' said Mulally. ''Once that infrastructure is firmly in place, China will become a formidable economic power. I look forward to the day when Boeing employees can say, 'We had the honor of being a part of that.'''

* * *

Chinese President Jiang Zemin (third fromEarlier this year, Civil Aviation Administration of China leaders announced changes that will give the country's aviation industry the tools it needs to become an even more important regional and global power. While CAAC airlines are undergoing a government- ordered restructuring into three large groups—China Southern Airlines, China Eastern Airlines, and Air China—China allows these carriers greater levels of foreign investment.

''China's decision about its economy has been one of the most important phenomena of the last two decades of the 20th century,'' said Tom Pickering, Boeing senior vice president of International Relations. ''It is what I call a sea change from previous ideas about economics in China.''

Condit adds: ''I think the efforts that the Chinese government has made in order to really develop the economy and build a market economy are paying off. Given the size of the country and its population, a robust economy results in a huge market. For a company like Boeing, it will represent both a big opportunity and an increasingly important opportunity.''

And with some segments of the Chinese population becoming more affluent, said Boeing leaders, increased domestic and international air travel will be a welcome byproduct.

Condit said that Chinese residents, who are about five times as numerous as those of the United States, are about 1 percent as likely to travel as Americans are.

''The propensity to travel is directly correlated to economic prosperity,'' he said. ''So if their economy grew to where the GDP per capita was one half that of the United States, we would see an absolutely huge increase in air travel. That obviously means airplanes and air traffic management. So it's really long-term market potential.''

And other Boeing businesses are getting into the mix.

Boeing Air Traffic Management, a business unit Boeing created in November 2000, is conducting a study of the Beijing Capital International Airport terminal maneuvering area and ground operations. Authorities expect air traffic levels here to double over the next eight years, and Boeing designed its ATM study to help ensure that the airport's expansion will meet its longterm capacity needs. This will be especially critical as China prepares for an expected spike in air traffic along with the 2008 Olympic Games. Boeing ATM is sharing its expertise by suggesting near-term capacity enhancement, as well as new design scenarios for the future.

''ATM is very important,'' Dickenson said, ''because as control of the Chinese airspace transitions from the military to the CAAC, they need to have a state-of-the-art system capable of maintaining that. There's a tremendous opportunity for ATM because of the groundwork that Commercial Airplanes has laid.''

Today, Boeing-China employs about 100 people directly, with another 200 working in Boeing-related businesses. The company maintains its Boeing-China headquarters in Beijing and another office in Hong Kong.

But the company's investment in China goes beyond jobs and offices—and beyond airplane sales and supplier arrangements. As far back as 1979, Pickering said, educational exchange programs between the United States and China have allowed students to gain openly available scientific and technical knowledge—and to learn about the others' cultures, as well. This has been ''a cornerstone for greater understanding of people on both sides,'' he said.

And for a company like Boeing, which builds systems that its leaders like to say ''connect and protect'' people throughout the world, that's no small feat.

''One thing I've always thought was really visionary was that the entire (Boeing) management back then—which has continued to Phil Condit—recognizes and emphasizes the importance of the Chinese market,'' Dickenson said. ''The U.S. government and the people that lead the government will change. But our commitment to China has remained the same, regardless of the political buffeting. I think the Chinese government has appreciated that.''

And that's what being a ''preferred partner'' is all about—making a difference by nurturing and building friendships that withstand time.

''There's an old Chinese saying,'' Dickenson said, ''that [says], 'When you drink from the well, never forget who helped you dig the well.' We helped the Chinese aviation industry dig the well, and our Chinese friends will continue to remember.''


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