Airbus lands massive deal with China

Huge order comes as Boeing battles its crisis

By JETHRO MULLEN, CNN BUSINESS
Courtesy Airbus via CNN

(CNN) - As Boeing struggles with the 737 Max crisis, its big rival Airbus has announced a huge order from China.

The European plane maker said Monday that it has reached a deal to sell 300 passenger jets to Chinese airlines. The agreement was signed during Chinese President Xi Jinping's visit to France.

The order covers 290 planes from the A320 family and 10 from the A350 line, Airbus said in a statement. The company said the agreement showed strong demand from all areas of China's rapidly expanding aviation market, including "domestic, low cost, regional and international long haul."

The European manufacturer didn't specify the total value of the deal and didn't respond to a request seeking further comment. Based on Airbus' list prices, the planes are worth roughly $35 billion altogether, but customers typically receive significant discounts from the list prices and can get bigger reductions for huge orders.

Airbus shares gained more than 1.5% in early European trading on Tuesday.

The massive Airbus order contrasts starkly with the problems facing Boeing, whose bestselling jetliner, the 737 Max, has been idled worldwide after being involved in two deadly crashes in less than five months. China was the first country to ground the 737 Max earlier this month following the crash of an Ethiopian Airlines flight.

The 737 Max competes directly with Airbus' A320neo. The two single-aisle aircraft, which fly short- and medium-haul routes, have each amassed thousands of orders from carriers around the globe.

Indonesian airline Garuda said last week that it is seeking to cancel a multibillion-dollar order for 49 737 Max aircraft from Boeing.

But Airbus will find it hard to benefit from Boeing's 737 Max problems because the European company's production line for the A320 and similar models is sold out for years in advance, according to Ellis Taylor, Asia finance editor at aviation intelligence firm FlightGlobal.

"In most cases, airlines that have ordered the Max will continue to take them, because they have invested in training and infrastructure to support that jet, and it would be costly to switch," he said.

Business diplomacy

Airbus' huge order from China is similar to one announced by Boeing less than two years ago. That deal, also for 300 aircraft, was made public when US President Donald Trump visited Xi in Beijing in November 2017.

Both the Airbus and Boeing orders came from a Chinese government holding company that buys jets for state-owned carriers such as Air China and China Southern Airlines. That makes it difficult to track which airlines are buying what.

Airbus said the deal with the holding company would translate into firm purchases from Chinese airlines in the future.

"These orders often are announced during these state visits," Taylor said. "Similar announcements occur when there is a US state visit."

But the recent trade dispute between the United States and China "has meant that there has not been a lot of engagement between Boeing and China of late," he added. "The 737 Max issues will further push back potential Boeing orders, but we are talking months rather than years."

China is a giant market for both Airbus and Boeing — and its importance is increasing all the time.

According to Airbus' latest forecast in November, China will need around 7,400 new passenger and cargo aircraft through 2037.

"At the end of the day, China will require airliners from both Boeing and Airbus, and it's only the timing that gets affected," Taylor said.

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