iOS app Android app More

Boeing Wins China Contract Worth $10 Billion

Boeing China

First Posted: 03/08/11 08:27 AM ET Updated: 05/25/11 07:35 PM ET

HONG KONG (Reuters) - Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) sealed deals worth $10 billion with two airlines in China, the world's fastest growing market that is likely to buy more than 2,000 aircraft over the next five years.

China expects to order 1,100 new transport aircraft and 1,000 general aviation aircraft, Wang Changshun, vice minister of the Civil Aviation Administration of China, said at an Asian aerospace conference on Tuesday.

Last-minute orders for 200 planes in December pushed EADS (EAD.PA: Quote, Profile, Research, Stock Buzz) subsidiary Airbus, past its U.S. rival for a third year. Both aircraft makers are flying high on demand from emerging economies and low-cost airlines and a shift toward less fuel-thirsty jets.

"Boeing and Airbus have a backlog of something like 7,000 planes in total. Right now they are just clearing the backlog of deliveries and so as these new planes come into the industry, that will impact supply and capacity," said Andrew Orchard, an analyst at RBS in Hong Kong.

As air travel becomes more essential among China's increasingly wealthy population, Chinese airlines are keen to expand their fleet and boost services to compete with regional players such as Singapore Airlines (SIAL.SI: Quote, Profile, Research, Stock Buzz) and Cathay Pacific (0293.HK: Quote, Profile, Research, Stock Buzz).

China's purchases of aircraft will help drive overall demand in Asia-Pacific, where average annual air traffic growth is expected to grow by 6.8 percent over the next 20 years, higher than the global pace, Boeing said. Asia-Pacific is likely to make up a third of global plane demand over the next 20 years.

Air China Ltd (601111.SS: Quote, Profile, Research, Stock Buzz) (0753.HK: Quote, Profile, Research, Stock Buzz), the country's flagship carrier, said it plans to buy five Boeing 747-8 aircraft worth a list price of about $1.54 billion to expand its fleet, a move which would be a boost for the slow-selling superjumbo jet.

The Boeing 747-8 has a list price of $317 million and has 467 seats. Planemakers often sell at a discount to their catalog prices.

Three customers have ordered the aircraft that is Boeing's answer to Airbus' A380. Lufthansa (LHAG.DE: Quote, Profile, Research, Stock Buzz) ordered 20 a few years ago, while Korean Air (003490.KS: Quote, Profile, Research, Stock Buzz) ordered five last year and now Air China plans to purchase another five.

"We are talking to airlines around the world that have long-haul market requirements that need an airplane of around 450 seats," Marlin Dailey, executive vice president, sales & marketing commercial airplanes of Boeing, told a news conference.

"I think this will be a very good year for the 747 program. I think you will see more customers in our backlog."

The 747-8 was the last of a very long line of very successful 747s, said Andrew Herdman, director general of industry body Association of Asia Pacific Airlines.
But so far there has been caution about adopting it.

"It's a feeling that there probably won't be more derivatives of that so this is the end of the line in terms of that particular type," Herdman said.

In a separate deal, HNA Group, parent of Hainan Airlines Co Ltd (600221.SS: Quote, Profile, Research, Stock Buzz), signed a memorandum of understanding with Boeing to purchase 38 aircraft, including six 777s and 32 787s.

The deals are worth $8.5 billion at list prices.
Boeing now has half of China's market share, with the rest mainly by Airbus.

FAST-GROWING ASIA FUELS DEMAND

Asia-Pacific's demand for aircraft will likely form a significant portion of the demand from global airlines, which Boeing said would need 30,900 new passenger and freighter aircraft by 2030, valued at $3.6 trillion.
In the short term however, the industry's outlook will also be clouded by uncertainties in the global economy, such as high oil prices and weakening defense spending, analysts and industry executives said.

"This year will be a bit slower than last year, the reason being that most of the near-term production capacity that we have available has already been sold," Dailey said.

"And so airlines are going to slow down a bit before they make those decisions because they are talking about airplane availability in the 2014/15 time frame," he said.

($1=HK$7.78)
(Additional reporting by Donny Kwok and Farah Master; Writing by Lee Chyen Yee; Editing by Anshuman Daga)


Copyright 2010 Thomson Reuters. Click for Restrictions.


FOLLOW HUFFPOST BUSINESS
Subscribe to the HuffPost Money newsletter!
Filed by Ryan McCarthy  |