October 18, 2011 – By Jack Kim and Fang Yan
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SEOUL/BEIJING (Reuters) - U.S. plane maker Boeing Co <BA.N> on Tuesday predicted more sales cancellations for its delayed Dreamliner 787, after a Chinese airline scrapped 24 orders, but said the overall order book for the new long-range aircraft remained strong.
A day after news of China Eastern's <600115.SS> <0670.HK> cancellations, a Boeing executive said some orders would fall through as it adjusted delivery dates and that the pace of production of the fuel-efficient aircraft would pick up.
"Frankly as we look forward, we expect to see the Dreamliner order base increase, we expect to see more orders, we expect to see more cancellations, especially as we go through mitigation with our customers," Boeing marketing vice president Randy Tinseth told a briefing in Seoul.
China Eastern said in a filing to the Hong Kong stock exchange it would instead spend $3.3 billion to buy 45 new Boeing 737 aircraft, more of a regional jet than the Dreamliner, and also buy 15 Airbus EADS <EAD.PA> A330s worth $2.5 billion.
Analysts said other Chinese airlines might also now decide to cancel Dreamliners as they re-assess the long-haul market.
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China Eastern's purchase of Airbus <EAD.PA> A330s, a competitor to the Dreamliner, could add even more pressure on Boeing to ramp up production of the 787s, now three years behind original schedule. Each plane has a list price of $185 million.
"There is a good chance that other Chinese airlines will also cancel their 787 orders because most of the time they will act together," said Kelvin Lau, an analyst at Daiwa Securities.
"This indicates that China Eastern is taking a bearish view on long-haul and believes the recovery in the United States and Europe won't come soon, so they don't want to invest so much on big planes for long-haul."
RISK TO 787 BACKLOG
Alex Hamilton, managing director of EarlyBirdCapital, also suspected Boeing's arch-rival, Airbus <EAD.PA>, was using the Dreamliner delays to push keenly priced sales of its own jets.
"All this highlights the risk to the 787 backlog, especially if they can't get to 10 per month," Hamilton said, referring to Boeing's 787 production target.
Boeing's Tinseth told reporters the company was producing two 787s a month, and would "slowly but consistently increase the rate until the end of 2013 we'll be building 10-a-month".
Other aviation analysts said Chinese airlines were more likely to reconsider their Dreamliner orders than many rivals elsewhere, because they had a more aggressive growth profile and were more sensitive to any downgrade to global growth.
Australia's Qantas Airways <QAN.AX>, struggling to revive profitability on its long-haul network, said on Tuesday that it remained fully committed to its 50 Dreamliner orders. Air New Zealand <AIR.NZ> also said it was not reconsidering its orders.
Korean Air Lines <003490.KS> also said it would introduce 10 787-9 Dreamliners from 2016 "as planned".
In Beijing, Boeing China said there was no sign of further cancellations of Chinese orders.
"The other committed Chinese airlines remain committed to the 787," Boeing said in a statement. "The 787 is the right choice for these airlines' international expansion for a number of reasons, including unmatched passenger experience, fuel efficiency and environmental performance."
Among Chinese airlines, China Southern <600029.SS> has 10 Dreamliners on order, Air China <601111.SS> 15, Hainan Airlines <600221.SS> 10 and Xiamen Air six. Hong Kong Airlines had in March signed an preliminary deal to buy 32 of the aircraft.
Boeing said the 24 787s canceled by China Eastern were part of a deal with China's government for the purchase of 60 787s. Globally for 2011, Boeing has reported 26 net cancellations for the Dreamliner, excluding China Eastern's decision.
The Dreamliner is about three years behind its original schedule because of kinks in the sprawling global supply chain.
Boeing still has more than 800 orders for the lightweight, carbon-composite aircraft on its books. It made first delivery of the Dreamliner to All Nippon Airways <9202.T> last month.
(Additional reporting by Michael Smith in SYDNEY, Mantik Kusjanto in WELLINGTON and Alison Leung in HONG KONG; Writing by Mark Bendeich)