Will China's "No Fly Zone" Mean Billions for Boeing?
Technically, China's recently announced Air Defense Identification Zone, or ADIZ, is not a "no fly zone." But forgive the pilots if they're still nervous.
Last week, the Chinese government announced, through the medium of its Xinhua News Agency, a new policy in the East China Sea:
The government of the People's Republic of China announces the establishment of the East China Sea Air Defense Identification Zone. ... The zone includes the airspace within the area enclosed by China's outer limit of the territorial sea and the following six points: 33 [degrees] 11 [minutes] N (North Latitude) and 121 [degrees] 47 [minutes] E (East Longitude), 33 [degrees] 11 [minutes] N and 125 [degrees] 00 [minutes] E, 31 [degrees] 00 [minutes] N and 128 [degrees] 20 [minutes] E, 25 [degrees] 38 [minutes] N and 125 [degrees] 00 [minutes] E, 24 [degrees] 45 [minutes] N and 123 [degrees] 00 [minutes] E, 26 [degrees] 44 [minutes] N and 120 [degrees] 58 [minutes] E.
What it means
China says this new zone went into effect at 10 a.m. Nov. 23 and remains in force today. In a nutshell, China is requiring that whenever an aircraft enters its self-declared ADIZ -- an area spreading out to encompass nearly 1 million square miles -- it must:
- Bear a logo clearly indicating its country of origin.
- Keep its radar transponder on, broadcasting its identity.
- Identify itself by radio when challenged, and "maintain the two-way radio communications."
- Inform China's Ministry of Foreign Affairs or Civil Aviation Administration of its flight plan.
Foreign aircraft entering the ADIZ must also "follow the instructions of the administrative organ of the East China Sea Air Defense Identification Zone or the unit authorized by the organ." Failure to comply may result in "defensive emergency measures" by "China's armed forces."
This doesn't appear to be empty posturing. China says it's already begun enforcing the policy. On Friday, China confirmed that it scrambled Su-30 and J-11 fighter jets to "verify two reconnaissance aircraft from the United States and identify 10 Japanese planes."
So you can understand why all of this would make pilots flying over the East China Sea just a wee bit nervous. China's neighbors aren't exactly thrilled with the new ADIZ, either.
The globe responds
In addition to the U.S., which considers China's ADIZ international airspace, at least three other nations make territorial claims affected by China's aerial land grab. And none of them is happy about it.
- Taiwan: "The move has not contributed to the positive development of cross-strait relations."
- South Korea, Vice Defence Minister Baek Seung-Joo: China is "heightening military tension in the region."
- Japan, House of Councillors member Takashi Uto: "We will probably be scrambling our jets more frequently. That means we will need to have more AWACS aircraft and ... more fighter jets." Elsewhere in Japan, they're floating the idea of building a new aircraft carrier -- Japan's first in 70 years.
- The United States, from the Department of State: "Freedom of overflight and other internationally lawful uses of sea and airspace are essential to prosperity, stability, and security in the Pacific. We remain deeply concerned by China's November 23 declaration of an 'East China Sea Air Identification Zone.'"
So far, each of America, South Korea, and Japan has challenged China's ADIZ by making military overflights within the region without filing flight plans with the Chinese. Taiwan declared that it, too, intends to continue carrying out sea and air missions in the region -- but so does China.
What it means to you
For the time being, and hopefully for the foreseeable future, no one's talking about an actual shooting war over China's ADIZ. Rather, this looks like a war of words -- and of dollars -- as nations throw money at each other to back up their claims.
Already, South Korea has promised to spend billions of dollars upgrading its air force with new F-35 stealth fighter jets from Lockheed Martin . Taiwan may spend billions more to upgrade its F-16 squadrons with improved engines from United Technologies . Heightened tensions in the region could mean even more arms sales for these defense contractors. The most immediate beneficiary of China's bellicosity, though, could be Boeing .
It takes months to work out a major arms deal, after all. Years more to build and deliver the planes. By that time, tensions may have cooled, and the need for major arms purchases in Southeast Asia waned. In the meantime, though, China's rivals in the region must run extra air patrols to assert their territorial claims. Japan's patrols, challenged by China this week, included F-15 fighter jets and E-767 AWACS -- both manufactured by Boeing.
The more flight-hours these planes rack up over the East China Sea, the more maintenance work they'll require, and the more spare parts they'll need. When you consider that the cost of maintaining and servicing a warplane can exceed its initial purchase cost by a factor of three over its lifetime, a heightened tempo of air operations off China could mean an immediate increase in Boeing's revenue stream for servicing the planes it's already sold.
And if, on top of all this, Boeing also manages to ink a few more sales contracts for E-3 AWACS, F-15 fighter jets, and P-8 Poseidon surveillance craft? I doubt the defense contractor will complain about that one bit.
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The article Will China's "No Fly Zone" Mean Billions for Boeing? originally appeared on Fool.com.Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends BMW and Nike and owns shares of Lockheed Martin and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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