Jet weight puzzle to determine tariff impact on Boeing

By Jamie Freed and Brenda Goh

SINGAPORE/SHANGHAI (Reuters) - China on Wednesday announced plans to place a 25 percent tariff on certain U.S. aircraft, in a move expected to affect some older Boeing narrowbody models, according to documents from China's Ministry of Commerce and the U.S. manufacturer.

But although several analysts said China had spared the newer 737 MAX - key to future Boeing profits - the impact remained uncertain because of a lack of detail in the announcement and the fact that not all airplane characteristics are published.

Boeing shares fell as much as 6 percent after China hit back at U.S. tariffs with the announcement of duties on key U.S. imports including soybeans, cars, beef and chemicals, as well as planes.

 

These include aircraft with an "empty weight" of between 15,000 kilograms and 45,000 kilograms, or 15 to 45 tonnes.

Depending on how "empty weight" is defined, this leaves a question mark over the fate of Boeing's new big-selling 737 MAX 8 jet - though the larger MAX 9 and MAX 10 could be spared.

The stakes are high. The United States exported $15 billion of aircraft to China in 2016, ranking equally with agricultural products like soybeans as the biggest category of goods.

Several definitions of "empty weight" are used in the aircraft industry and the ministry document gave no explanation.

Two industry experts said the rules most likely refer to the "manufacturer's empty weight," or the core aircraft structure.

But manufacturers are usually shy about publishing this number because of its commercial sensitivity, while they do give estimates for the slightly higher "operating empty weight," which includes airline crew and some equipment, but not fuel.

Yet even this number can vary according to an airline's specific requirements, so it is seen as a guideline.

Whatever category is used, the range appears comfortably to include the current-generation 737 narrowbody aircraft, which is in the midst of being replaced by the newer 737 MAX.

737 MAX 8 IMPACT UNCLEAR

Boeing documents available online list the "operating empty weight" (OEW) of the 737-700, 737-800 and 737-900 well within the tariff zone at 37.6 to 42.9 tonnes.

The "manufacturer's empty weight" (MEW) would typically be about 1-1.5 tonnes lower, two airplane appraisal experts said.

In contrast, the newer 737 MAX 8 is heavier than its predecessor, with an operating empty weight of 45,070 kg, according to a Boeing document published in August 2017.

Depending on how rules are applied, this leaves it hovering close to the tariff border line and potentially still exposed to sanctions if the more conservative "manufacturer" scale is used.

"I would expect a non-variable weight (MEW) to be used as the benchmark, as OEW will vary from operator to operator," said Stuart Hatcher, chief operating officer of UK-based advisory firm IBA, adding this would pull the jet below 45 tonnes.

Even if the more generous OEW weight format were used, not all 737 MAX 8s might escape as some use lighter layouts. "A 70kg drop is pretty easy once you get into the realms of low-cost carriers or standard single-class operations," Hatcher added.

In a statement, Boeing said the tariffs "are still in the proposal stage, so we are assessing the situation."

Chinese airlines have been on a buying spree from Boeing and rival Airbus as air travel grows.

Boeing and China's Commercial Aircraft Corp of China (COMAC) are expected to open a 737 completion centre in the coastal city of Zhoushan to install interiors and paint liveries this year.

The bulk of published 737 orders from Chinese that have not yet been delivered are for the newer MAX version.

However, China Southern Airlines <600029.SS>, Ruili Airlines and Okay Airways each have two 737-800s on order and Xiamen Airlines has four more, according to the Boeing order book.

Asked if the airline's plane buying plans could shift away from Boeing, China Eastern Airlines Corp <600115.SS> CEO Ma Xulun said on Wednesday "it's too early to say, we will keep an eye on the situation of the China-U.S. trade war."

Apart from some Boeing jets, the Gulfstream G650, a large corporate jet manufactured by General Dynamics Corp , also falls into the weight range targeted for tariffs.

Gulfstream declined to comment.

(Reporting by Jamie Freed in SINGAPORE and Brenda Goh in SHANGHAI; additional reporting by Tim Hepher in PARIS, Alwyn Scott in NEW YORK; Writing by Jamie Freed and Tim Hepher; Editing by Mark Potter and Susan Fenton)