Boeing’s China problem keep getting worse

Sanctions were announced on Friday against Ted Colbert, CEO of Boeing Defense, Space and Security, and Gregory Hayes, chairman and CEO of Raytheon Technologies, in retaliation for Boeing and Raytheon selling $1.09 billion in weapons to Taiwan. As part of the purchases, Taiwan bought $355 million worth of Boeing’s Harpoon missiles and $85 million worth of Raytheon’s Sidewinder missiles.

The U.S. government had announced the arms sales last week, and said they were necessary for Taiwan to “maintain a sufficient self-defense capability” amid rising military pressures from Beijing.

Beijing explained the reasoning for the sanctions on Friday.

“China firmly opposes and strongly condemns the sales,” Mao Ning, spokesperson for the China’s ministry of foreign affairs, said at a press conference. “The arms sales gravely undermine China’s sovereignty and security interests, and severely harm China-U.S. relations and peace and stability in the Taiwan Strait.”

The Boeing Company is the parent firm of both Boeing Defense, Space and Security, a defense contracting unit, and Boeing Commercial Airplanes, the division that makes passenger airplanes.

Boeing did not respond to Fortune‘s request for comment on the sanctions and their effects on its China business.

Airplane sales

Boeing has a 50-year-long history of selling planes in China and Boeing jets account for roughly one-half of China’s passenger aircraft fleet. In 2018, China accounted for 22% of Boeing’s aircraft revenues, Boeing’s second largest market behind the U.S., which made up 29% of the firm’s revenues. But that close relationship has become strained.

China was the first country to ground Boeing’s top-selling 733-MAX airplane in 2019, when a faulty design in the model contributed to two airplane crashes. It was also among the last countries to clear the airplane model for the skies last December, and the Civil Aviation Administration of China, the country’s airplane regulator, still has yet to clear Chinese airliners to receive new deliveries of the aircraft.

China has “lost confidence” in Boeing and its B737 Max jet due to strained U.S.-China relations and 737-MAX crashes, the state-owned newspaper The Global Times wrote in July.

Boeing, meanwhile, has reportedly built up a backlog of 120 737-MAX airplanes that are destined for the Chinese market since China cleared the airplane model for the skies last December. But Boeing appears to be giving up on being able to send them to China anytime soon, announcing last week that they are reselling some of those planes to other countries amid the hold-up in China.

“We have deferred decisions on those planes for a long time [but] we can’t defer that decision forever,” The Boeing Company’s chief financial officer Brian West recently said at a conference hosted by Morgan Stanley. “So, we will begin to re-market some of those airplanes. They were otherwise earmarked for our Chinese customers.”

Boeing’s chief rival Airbus, meanwhile, announced in July that China’s top three carriers ordered 292 new A320 jets for $37 billion, signaling China’s preference for the A320 airplane over Boeing’s 737-MAX. China’s state-owned COMAC is also set to soon begin deliveries of its long-awaited C919 jet, which will further shrink Boeing’s market in China.

Boeing lamented in July that years of rising U.S.-China tensions, a trade war, and increased pressures over Taiwan has hurt the airplane giant’s business in the country.

“As a top U.S. exporter with a 50-year relationship with China’s aviation industry, it is disappointing that geopolitical differences continue to constrain U.S. aircraft exports,” a Boeing spokesperson said in July.

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