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PAS 2017 Analysis: CDB Aviation Buys 56 Boeing Jets Including MAX 10

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PAS 2017 Analysis: CDB Aviation Buys 56 Boeing Jets Including MAX 10

Image Courtesy of Boeing

PAS 2017 Analysis: CDB Aviation Buys 56 Boeing Jets Including MAX 10
June 19
05:22 2017

PARIS – CDB Aviation signed a memorandum of understanding (MoU) with Boeing at the Paris Air Show Monday to buy 56 new Boeing jets, including 10 orders (6 converted from existing MAX 8 orders) for Boeing’s newly launched 737 MAX 10.

The order consists of 42 737 MAX 8 jets, 10 737 MAX 10s, and 8 787-9 Dreamliners in all. CDB previously placed an order for 30 737 MAX 8 jets back in March 2014, so its order book, once these MAX jets are firmed up, will consist of a total of  78 737 MAX planes.

As a result, CDB becomes the latest customer to help Boeing launch the 737 MAX 10 via a conversion, as more than 70% of the new orders announced Monday (44 of 58 from four customers as of 12:15 pm CET) are conversions.

“Our new vision is to propel CDB Aviation into a formidable global aviation leasing platform,” said Peter Chang, President and Chief Executive Officer, CDB Aviation. “The 737 MAX, the fastest-selling airplane in Boeing history, and the cutting-edge 787 Dreamliner will play a key role in bolstering our fleet and advancing our global market presence to fulfill the vision.”

Based in Ireland (for regulatory purposes) CDB Aviation is a wholly owned subsidiary of the state-owned China Development Bank. It has customers all over the world, though one of its primary markets is, of course, its home one in China.

“We are honored to bring our enduring partnership with CDB Aviation to a new level, with the new commitment for additional Boeing single-aisle and widebody airplanes to meet the needs of their customers,” said Boeing Commercial Airplanes President & CEO Kevin McAllister. “This further demonstrates the popularity of our latest, fuel efficient 737 MAX and 787 airplane models.”

China will be a key market for the 737 MAX 10


For the 737 MAX 10 to be successful, it will need a decent boost from the Chinese airline industry, which already represents about 33% of 737 sales. To date, however, China has purchased just 159 737 MAX jets, a figure which must rise precipitously in order to replace the existing narrowbodies in Chinese fleets.

China is in the grips of a massive squeeze on its airspace, as years of breakneck growth have not been supplemented by sufficient investment in air traffic control (ATC) capabilities and infrastructure.

This has created a bottleneck in the skies above major Chinese cities like Shanghai, Beijing, and the Pearl River Delta hubs of Shenzhen and Guangzhou. One way of overcoming this bottleneck will be to shift domestic flying to larger aircraft, and both the A321neo and 737 MAX 10 should play a role in that.

China has numerous high-volume domestic routes with multiple daily frequencies that will naturally grow into the demand for the MAX 10 and A321neo.

The country’s big four carriers, China Southern, China Eastern, Air China, and Hainan Airlines have a place for the MAX 10 in their fleets. In particular, China Southern, Hainan, and Air China have massive hubs at heavily slot constrained Beijing Capital International Airport, and the 737 MAX 10 would allow them to grow at China’s busiest airport.

China Eastern has less pressure at its main hub at Shanghai – Pudong, but its domestic gateway of Shanghai Hongqiao will run out of available slots soon, and that might be a strong 737 MAX 10 market as well.

Perhaps more importantly for Boeing is that China will not solely consider operating economics and residual values when purchasing 737 MAX jets. So in what will soon be the world’s largest market for new-build aircraft, Boeing may be able to grab 40-50% of the middle of the market (MOM) orders, even without launching a new mid-sized airplane.

China buys aircraft from the west as much to curry political favor and preserve trade deals as it does to fulfill new fleet needs, and in the era of Trump, there may be more risk on the US side than usual.

One way of alleviating the pressure that Trump may put on China is to buy more Boeing jets, which could be one of the drivers behind CDB’s order along with a forthcoming order by China Aircraft Leasing Group Holdings (CALC) for 50 737 MAX jets.

China needs more Dreamliners


The order for 8 787-9 Dreamliners is also a welcome one, given that the Dreamliner to date hasn’t scored major points in the Chinese market. The big four (Hainan, China Eastern, China Southern, and Air China) operate just 31 787s between them (with 22 more on order), while they collectively have 65 A350-900s on order. The 787-9 Dreamliner would be a perfect fit on many of the new

The 787-9 Dreamliner would be a perfect fit on many of the new long-haul routes being launched from secondary and tertiary Chinese hubs, as these routes are often money-losing and launched for strategic reasons.

China will certainly order more Dreamliners when the time comes, and like other customers is blocked to an extent from doing so by the current lack of available 787 delivery slots before the early 2020s. Even so, it is good to see an additional order from China for the 787 Dreamliner, even if its a relatively small one.

CDB Aviation is also likely to order the Airbus A320neo and Airbus A350-900 in our view, perhaps as soon as later this year (with an outside chance of occurring during PAS).

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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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