China’s Taiwan Stance May Damage U.S. Defense Firms

Posted by Philip Dru on 2/03/10 • Categorized as China, Military Industrial Complex

China’s threats to impose sanctions on U.S. aerospace companies that sell weapons to Taiwan could be particularly damaging to an industry that has looked to the region for future growth.

The four companies threatened with sanctions include Raytheon, Boeing, United Technologies and Lockheed Martin. As members of the U.S. Foreign Military Sales Program, the companies are required to sell arms and weapons systems to allies of the U.S.

While in the past China has focused its discontent with U.S. arms sales to Taiwan on the U.S. government, its latest rhetoric has put the onus on the companies supplying those coulds. The threatened sanctions could be particularly damaging for Boeing and United Technologies, which are actively operating in China.

The aircraft industry has been looking to the growing Asian market to rehabilitate sales and revive the industry–while global air travel dropped by 2% last year, domestic air travel in China jumped 21%. Boeing estimates that in the next 20 years the burgeoning Chinese market will require 3,800 airplanes at a cost of $400 billion. The aircraft and defense manufacturer plans to send its first China-based sales executive to Beijing soon.

If China imposes the threatened sanctions, Boeing could lose out on the Chinese market and fall further behind its rival Airbus. The U.S. company is already hurting after several rounds of developmental delays led its 787 Dreamliner aircraft to take its first flight two years behind schedule. Its fourth-quarter earnings report showed a healthy profit, but also the damage of the 787 delays on the bottom line.

Raytheon’s earnings reported its plan to sell a $990 million Patriot Missile System to Taiwan, but the defense contractor also has several valuable contracts in China, including plans to provide an air-traffic-control system for Shenyang Airport.

Despite the possibility of sanctions, shares of the involved companies held steady Wednesday morning. Boeing shares lost 0.3% to $61.32 in early trading. United Technologies was down less than 0.1% at $68.00, while Raytheon had a minimal gain to $54.70 and Lockheed Martin dipped 0.2% to $76.43.

The Associated Press contributed to this report.

Forbes | Kelsey Swanekamp | Wed, Feb 3, 2010

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