August 07, 2012
China has begun ordering updated narrowbodies, with an unannounced contract for 30 Boeing 737 MAXs from Xiamen Airlines.
Although the agreement is not yet definitive, it confirms that Chinese carriers, with the presumed blessing of the government, will not wait for the finalization of the next five-year plan in late 2014 before ordering re-engined narrowbodies.
More Chinese orders for the 737 MAX and Airbus A320NEO family are expected in coming months. The pressure to place such orders is now higher because other Chinese carriers will want equivalent aircraft in competing against Xiamen.
The Xiamen Airlines contract is subject to later government approval and is intended to secure delivery positions, says an executive with a manufacturer that will benefit from the deal. The contract accompanied an order for 40 current-production 737-800s that the carrier announced on Aug. 3.
The publicly revealed order also is subject to government approval, but the authorities are likely to authorize it before they give the go-ahead for buying the MAXs. Industry executives say that one reason Xiamen Airlines and the government avoided publicity in securing MAX slots is a concern that Chinese orders for updated foreign aircraft imply an unwillingness to rely on the nominally comparable Comac C919, which is due to enter service in 2016.
China traditionally plans investment in commercial aviation, and much else in the economy, according to five-year plans. The plan for 2016-20 should appear in late 2014, but by that time Airbus and Boeing may have few production slots for the re-engined aircraft for that period, forcing China to keep ordering the earlier models. So industry officials have expected the country to break with tradition and begin securing slots before the 2016-20 plan is finalized.
Xiamen Airlines will use the 737-800s to increase capacity on domestic and international routes, Boeing says. At list prices, the 40 aircraft are valued at $3.5 billion, though buyers typically negotiate discounts.
Xiamen Airlines is 51% owned by China Southern, which says its subsidiary will use bank loans and operating income to pay for the 737-800s.