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Special Report: Hainan Airlines Buys 50 737 MAX 8s; Shines Spotlight on Chinese Narrowbody Market

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Special Report: Hainan Airlines Buys 50 737 MAX 8s; Shines Spotlight on Chinese Narrowbody Market

Special Report: Hainan Airlines Buys 50 737 MAX 8s; Shines Spotlight on Chinese Narrowbody Market
July 16
08:00 2014

LONDON — Chinese airline Hainan Airlines announced a purchase commitment for 50 Boeing 737 MAX 8 aircraft Wednesday at the Farnborough Airshow, in an order worth more than $5.1 billion at present list prices. The order is subject to Chinese government approval, and commercial terms for the deal are still being finalized.

Hainan Airlines have a fleet of 103 Boeing 737 narrowbodies which represent the only single-aisle aircraft in their fleet at present, though they do have an order for 22 of Chinese airframer COMAC’s delayed C919.

“We tried to get this deal done for a long time,” said Adam Tan, Vice Chariman and President of Hainan Group, “We have a long time relationship with Boeing, one that I think is a friendship, not only a working relationship…. Whenever we have issues, we definitely go to our partner and friend Boeing.”

Mr. Tan was bullish about the 737 MAX’s performance characteristics. “I do believe that the 50 MAX aircraft will be good for fuel burn,” said Mr. Tan, “I trust this aircraft.”

Ray Conner, President and CEO of Boeing Commercial Airplanes noted that Hainan has been a key partner for Boeing, “You’ve grown the airline through 737 NGs, as well as the 787, and now the MAX.”

China is a key target market for re-engined airplanes for both Boeing and rival Airbus. After the United States China is the largest home for both Boeing and Airbus’ present-day A320ceos and 737NGs. China’s airlines operate 714 current generation Airbus A320ceo aircraft and 809 737NG aircraft as of June 2014.

Finding exact totals for sales of the A320neo and 737 MAX in China is difficult, given conflicting claims from both airframers and the heavy government (and thus political) involvement in any Chinese aircraft order. However, working exclusively off of publicly announced orders and purchase commitments for each aircraft type, Airchive developed the table below, which summarizes each airplane’s sales success in China.

Airbus Boeing
Carrier Number Status Carrier Number Status
China Eastern 70 Firm Okay Airways 6 Firm
China Southern 50 Firm China Eastern 60 Firm?
Qingdao Airlines 18 MoU Xiamen Airlines 30 MoU
Loong Air 9 MoU Shandong Airlines 34 Firm
Air China 60 Commitment Hainan Airlines 50 Commitment
ICBC Leasing 20 Firm
TOTAL 227 TOTAL 180

However, Boeing’s executives believe that the 737 MAX 8’s likely advantage in seat mile economics will play a role in giving Boeing the upper hand in the Chinese market. Mr. Conner pegged that advantage at 8%, and John Wojick, senior vice president, Global Sales & Marketing for Boeing Commercial Airplanes, added that, “It’s all about how you can offer operators a lower cost at any stage length… but in particular on short haul routes. The [737] MAX is a great aircraft for domestic China.

Despite Boeing’s confidence, the present day split in orders between the MAX and the neo is likely to persist in the future. Aircraft orders in China are highly politicized, and for public relations reasons (and negotiating leverage), the nation likes to maintain a balance of aircraft purchases between the United States and Europe.

However, the timing of Hainan’s announcement, the second Chinese order announcement of the airshow, is rather curious. China typically tries to pair an announcement of an order for Boeing (and Airbus) aircraft with some sort of key diplomatic event; state visits or economic negotiations. Doing so allows them to maximize the public relations boost and gain negotiating leverage.

Yet at the 2014 Farnborough Air Show, Chinese airlines have announced two separate orders. Okay Airways is a private airline, so government control over its operations is loose, but the timing of Hainan Airlines orders is normally dictated by the Chinese government, who are not typically fond of making such announcements during Western airshows.

Securing of better purchase terms might be one possible reason for this announcement timing, and manufacturers often offer discounts for carriers who time purchase announcements around the bi-annual Paris and Farnborough airshows.

But the size of these discounts pales in comparison to the discount China typically receives for negotiating its aircraft orders in bulk. When combined with a Loong Air order for Bombardier’s C-Series, the trio of Chinese order announcements are an emerging puzzle from this year’s Farnborough Airshow.

 

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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