China Eastern Airlines drops 787 order in favor of 737, Airbus’ A330s

Boeing lost a major customer for its new 787 on Tuesday, with China Eastern Airlines canceling its order for 24 of the long-delayed planes after saying it has waited long enough.

The Shanghai-based airline swapped the 787 order for 45 of Boeing’s smaller 737s instead. It also placed a new order with Boeing competitor Airbus for 15 new A330s, which are in roughly the same size class as the 787.

Last month, Boeing delivered the first 787 to a customer, three years late. The delays have forced airlines to revise their fleet plans and have cost Boeing goodwill with its airline customers. China Eastern said in a filing that the 787 cancellation was “due to Boeing Company’s delay in delivery.”

Deliveries of the A330 are due to begin in 2013.

“These guys need the capacity today, and Boeing can’t deliver it,” said Citi analyst Jason Gursky.

Even though it is now delivering 787s, Boeing still faces a tough production ramp-up. It is aiming to make 10 per month by the end of 2013.

In the short run, the switch to the 737s is to Boeing’s benefit because profits are higher on 737s, Gursky said. Boeing has not yet said when it expects to turn a profit on the 787, but expectations are low.

Once the Chinese government approves China Eastern’s 787 cancellation, Boeing will have lost orders for 178 of the planes. That would still leave it with orders for 797 of the aircraft. China Eastern said the new 737s are worth about $3.3 billion at list prices, which it said was about the same as the canceled 787s. Some of its payment for the planes will come from penalties paid by Boeing for the 787 delay, the airline said.

Boeing spokesman Doug Alder declined to discuss financial aspects of China Eastern’s announcement.

Shares of Chicago-based Boeing Co. rose $2.36, or 3.8 percent, to $64.14 in afternoon trading.

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