Boeing's Baby Steps in China

Keep your friends close and potential customers even closer. At least that's what Boeing (NYSE: BA  ) believes. The Chicago-based aerospace giant recently partnered with Commercial Aircraft Corporation of China -- or Comac -- to invest in a research project aimed at energy conservation and fuel reduction.

Although the exact amount that Boeing plans to invest in this project is not known, what becomes quite apparent is how the company is going all out to build relationships in this potentially huge market.

What's the deal?
The whole plan revolves around setting up an energy-conservation technology center in Beijing to find ways to make "greener" aircraft by cutting down on greenhouse gas emissions. Although aviation currently accounts for merely 3% of global carbon emissions, this number is likely to increase given the rising popularity of air travel in emerging Asian markets.

On this front, Boeing and Comac look seriously committed, joining hands with universities and research institutions to study technologies such as sustainable aviation biofuels.

Deeper than the deal
But, as you must be thinking by now, this deal is not just for research purposes only. Here's the extra benefit: The Chinese government controls the majority of the aviation industry in that country. Comac is a state-owned enterprise and therefore a perfect link to the government and the thriving Chinese aerospace market. Boeing already has a history of collaboration with a unit of Comac -- the Shanghai Aircraft Manufacturing Company -- that makes horizontal stabilizers for the company's 737 airliners. The new deal takes the relationship one step forward. It's possible that if the research does stumble on any significant findings, Boeing will be in a real sweet spot.

According to Boeing, China is expected to create demand worth $600 billion for 5,000 commercial airplanes over the next two decades. The investment could be well worth it.

The Foolish bottom line
Boeing's presence in China is not just limited to Comac. With more than 800 Boeing jets being used in the country, the company controls more than 50% of the commercial aerospace market in China. New orders from the country, however, have been on the decline lately due to stringent competition from Airbus and other Chinese companies.

This is primarily why Boeing needs to regain its dominance in the country before it is too late -- especially in an area where these futuristic research initiatives should help a lot. What do you think?

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Fool contributor Navjot Kaur does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/21/2016 4:03 PM
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