Boeing’s mega order in China is said to cover mostly old deals

Bloomberg

Boeing’s $37 billion order, unveiled during Donald Trump’s first visit to China as U.S. president, consists mostly of previously agreed deals, according to officials with knowledge of the matter.

The 300 aircraft order from China Aviation Supplies Holding Co., the state-owned company that does bulk orders for local airlines, is mostly for jets that have been agreed upon since 2013 and set to be delivered through 2020, said one of the people, who asked not to be identified because he isn’t authorized to speak to media. The order is for 260 narrow-body planes and 40 widebody aircraft, the Chinese company said Thursday after Trump met with President Xi Jinping in Beijing.

Representatives of Chicago-based Boeing declined to say whether the contracts are new, or rather, old acquisitions that are sometimes made public during heads-of-state visits. China Aviation didn’t respond to phone calls seeking comment. On its website, Boeing lists more than 1,000 orders from undisclosed clients.

The latest twist underscores the political stakes in the transaction as the U.S. administration seeks to show its ability to pull in large contracts for its biggest manufacturers. Last month, Singapore Airlines formally signed a firm order with Boeing for $13.8 billion at list prices in a ceremony witnessed by Trump and Singapore Prime Minister Lee Hsien Loong. That was the finalization of a deal that was announced in February as a letter of intent.

“We are not 100 percent sure whether this is already included in what Boeing had previously disclosed,” said Corrine Png, CEO of Crucial Perspective, a specialist in Asian transportation equities. “Sometimes they double count.”

Chinese airlines have been on a plane-buying spree from Boeing and Airbus SE amid a projection for the country to overtake the U.S. as the largest air-travel market in five years. The state has previously placed large orders through a centralized buyer before dividing them up among its airlines and leasing companies, including a $22 billion deal China Aviation Supplies announced in July.

During a visit by Xi to Berlin in July, Airbus said it won a $22 billion order to supply 140 planes to China, including 40 widebody A350s and 100 of its narrowbody A320-series jets.

In September 2015, Boeing landed $38 billion in plane orders and commitments from Chinese carriers and lessors when Xi made his first state visit to the U.S. Under the “general terms agreement” announced at the time, there were orders and commitments for 190 single-aisle 737s and 50 wide-body jetliners, without customers being identified. Lessors ICBC Financial Leasing Co. and CDB Leasing Co. took another 60 737s.

“It’s well-established political order and would have been surprising if something was not announced,” said Will Horton, the Hong Kong-based analyst at CAPA Centre for Aviation. “Three hundred aircraft for China is supermarket shopping, not Costco stockpiling. There will need to be more orders soon.”

Boeing in September raised its 20-year forecast for aircraft demand in China as the nation’s growth and an expanding middle class boost air travel. The planemaker expects China needs 7,240 new planes valued at almost $1.1 trillion in the two decades through 2036, compared with a previous projection for 6,810 aircraft through 2035.

Air China Ltd., China Eastern Airlines Corp., China Southern Airlines Co. — the three biggest state carriers — together plan to add more than 600 aircraft through 2020. Air China and China Eastern intend to introduce 167 and 191 aircraft respectively through 2019, while China Southern has plans for almost 300 more planes by 2020, according to the companies’ financial statements.

Among the most recent orders for Chinese carriers, China Southern said last month it signed a contract to buy 38 Boeing planes — eight 777s and 30 737s — at a list price of $5.65 billion. This followed a $6 billion order for 20 Airbus A350 planes that the Guangzhou-based carrier announced six months earlier. China Southern will take delivery of the A350-900s starting 2019, with all of the planes to be handed over by the end of 2022, it said in April.

Separately, General Electric signed three commercial deals worth $3.5 billion as part of Trump’s visit, including supply of engines to Juneyao Airlines Co. and ICBC Financial Leasing Co.