Symbolic buy

Purchasing European these days

The timing with which Chinese aviation bosses disclosed the purchase of 292 Airbus aircraft on July 1 was surprising. Massive orders like these are typically announced after aerospace trade shows or as part of high-profile diplomatic visits. A 2017 deal with Boeing brought an order of 300 of the American jets by Chinese airlines during a visit by former US President Donald Trump to Beijing, for instance. Xi Jinping signed off on a “framework order” for 300 Airbus planes when he visited Paris in early 2019 (questions were raised on how much of this was new business, Reuters reported, because the headline figures often include older deals that are rehashed to make headlines).

So what’s different about the latest Airbus order, which is believed to be worth at least $37 billion? There have been no state visits from Chinese or European leaders recently. And the announcement of the purchase of nearly 300 A320s from the European manufacturer was soon followed by a detailed set of disclosures from the Chinese carriers that are going to pay for them.

Take China Eastern. It said it will buy 100 A320s, scheduled for delivery from 2024 to 2027. The planes should have cost Rmb85.8 billion ($12.8 billion), according to their catalogue price in January 2020. But the actual consideration – which it has not disclosed – is “significantly lower” after negotiations with Airbus, the carrier said.

“Against the backdrop that the aviation market has not fully recovered [from the Covid-19 pandemic]… the company has obtained conditions more favourable than ever in terms of pricing and some other commercial terms,” China Eastern explained, saying that it needed to invest in its fleet now to meet the growth potential of China’s domestic market. Most of the planes will be deployed on its domestic trunk routes, the carrier added.

Air China and China Southern both made similar points in stock exchange circulars in Hong Kong, with ThePaper.cn, a news portal run by Shanghai United Media Group, describing the order as the biggest ever for the big three state-owned carriers, both in terms of numbers of aircraft and the total price.

The deal was struck in accordance with “normal commercial and industrial practices”, the trio insist. But Boeing, the main rival of Airbus, gripes otherwise. “It is disappointing that geopolitical differences continued to constrain US aircraft exports,” a spokesman from the American giant told Bloomberg.

Analysts have been warning that Boeing will struggle to win market share in China because of retaliation against American sanctions on Chinese firms such as Huawei. Boeing is one of the prime targets of the Chinese response, they warn, even if the retribution is conducted on an unofficial basis. Chinese carriers such as China Southern, as well as aircraft leasing units operated by the local banks, have reportedly cancelled the purchase of more than 100 planes from Boeing since 2020 as governmental tensions between China and the US have worsened.

It is only natural for the Americans to feel sour after losing out to Airbus, the Global Times teased in an editorial, before insisting that there were no ulterior political considerations behind the latest deal. The newspaper reckons that Airbus (which has an assembly plant in Tianjin) is “way ahead” of Boeing in competing for global orders, while the American firm’s inability to sign similar contracts in China is partly linked to the reputational damage over accidents involving the 737-Max (which the Chinese authorities were the first in the world to ground after a fatal crash; see WiC444).

In celebrating Boeing’s hundred years in aviation in 2016, John Burns, president of the company’s China division, predicted that the Chinese market would be “an indispensable part of Boeing in the next 100 years”. At the time Boeing was counting on a 300-aircraft mega order from customers in China. Much of the optimism from back then has stalled. What has followed is one of the most turbulent patches in the planemaker’s history in which it has had to cope with trade wars, the pandemic and the worst safety scandal in its history.

Each would have been a disaster in its own right. Few would have predicted that all three crises would come in such close progression…

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