China Eastern cancels order for Boeing 787s

Airline opts for smaller 737, A330 aircraft to serve domestic market

BEIJING - Chinese airlines that used to boast about ambitious international expansion plans are now turning their focus back home as the weakening global economy hurts demand for long-haul air travel.

China Eastern Airlines Corp, the country's second-largest carrier by aircraft numbers, announced on Monday night it was canceling its order for 24 Boeing 787 Dreamliners in favor of 45 smaller 737s, which will be delivered between 2014 and 2016.

The airline cited the delay in the delivery of the Dreamliner and a weakening world economy, which is hurting long-haul international air travel, as the reason for the cancellation.

"We are not optimistic about the international market in the next two years, for the weakening global economy hurts air travel," said Luo Zhuping, secretary of the board of China Eastern. "We are making rapid moves to serve domestic demand, which is still robust at the moment," Luo said.

The Shanghai-based carrier is the first Chinese airline to cancel orders for the 787.

The list prices for the 787 and 737 orders are comparable, but the carrier will pay significantly less than the $3.3 billion list price for the 737 order, China Eastern said in a statement.

It will also deduct compensation Boeing Co offered for the delivery delay from the price.

China Eastern will also return five A340-300s to Airbus SAS in exchange for 15 smaller wide-body A330s, which could be operated on domestic routes, Bloomberg reported. The total value of the A330s is $2.53 billion, the carrier said.

China Southern Airlines Co Ltd, Air China Ltd and Hainan Airlines Co Ltd also have confirmed orders for 35 Dreamliners.

China Southern may scrap its 10 orders for the 787 after delivery of the first plane was pushed back to July 2012, Bloomberg reported on Tuesday. Xu Jiebo, chief financial officer of China Southern, told Bloomberg that the carrier will seek compensation from Boeing for the delay.

China Southern, the country's largest carrier by fleet, also will adjust its international strategy in some areas, since economic growth is slowing in the West, but the carrier will still invest in its international routes, an official with the airline told China Daily on condition of anonymity.

"We keep an eye on the global economy so we can adjust our strategy at any time," she said.

Boeing delivered its first 787 Dreamliners to All Nippon Airways Co Ltd on Sept 25, three years after the original delivery date.

Air China has no plans to cancel its orders for the 787, Rao Xinyu, secretary of the board, said on Tuesday. Repeated calls to Hainan Airlines' public relations department were not answered

Boeing remains confident about the 787's prospects in the Chinese market since the manufacturer still has 38 orders, pending government approval, from Xiamen Airlines Ltd and Hong Kong Airlines Ltd.

"The other Chinese airlines with orders remain committed to the 787," said Wang Yukui, vice-president of communication of Boeing China.

International passenger traffic contracted in August by 1.8 percent compared with July, according to the International Air Transport Association. Historically, the aviation industry has delivered collective losses when GDP growth fell below 2 percent - on Oct 4, Goldman Sachs Group Inc cut its 2011 global growth forecast to 3.8 percent from 3.9 percent.

However, the economic slowdown in the West will affect only the international market, not the domestic Chinese market, analysts said.

China's airlines will still significantly invest in the domestic market, after the international market contracts, said Li Lei, an aviation analyst with CITIC Securities Co Ltd.

"The budget for long-distance planes will be cut to smaller ones," he said.

China Daily

(China Daily 10/19/2011 page16)