Boeing inks $10 billion deals with two Chinese airlines

By Alison Leung and James Pomfret

HONG KONG (Reuters) - Boeing Co <BA.N> sealed deals worth $10 billion with two Chinese airlines as the world's second-largest economy expects to order more than 2,000 aircraft over the next five years to meet booming demand for air services.

China expects to order 1,100 new transport aircraft and 1,000 general aviation aircraft in the next five years, Wang Changshun, vice minister of the Civil Aviation Administration of China, said at an Asian aerospace conference on Tuesday.

As air travel becomes more essential among China's increasingly wealthy population, Chinese airlines are keen to expand their fleet and bump up services to compete with regional players such as Cathay Pacific <0293.HK>.

"(The sector) will maintain a definite growth speed," Wang told reporters in Hong Kong on the sidelines of the conference.

China's purchases of aircraft will help drive overall demand in Asia Pacific, where average annual air traffic growth is expected to grow by 6.8 percent over the next 20 years, higher than the global pace, Boeing, the world's No. 2 commercial plane maker after EADS <EAD.PA> subsidiary Airbus, said.

Air China Ltd <601111.SS> <0753.HK>, the country's flagship carrier said it plans to purchase five Boeing 747-8 aircraft worth a list price of about $1.54 billion to expand its fleet, a move which would come as boost to the slow-selling superjumbo jet.

The Boeing 747-8 has a list price of $317 million each and has 467 seats.

Three customers have ordered the aircraft that is Boeing's answer to Airbus' A380. Lufthansa ordered 20 a few years ago, while Korean Air ordered five last year and now Air China plans to purchase another five.

"We are talking to airlines around the world that have long-haul market requirements that need an airplane of around 450 seats. I think this will be a very good year for the 747 program. I think you will see more customers in our backlog," Marlin Dailey, executive vice president, sales & marketing commercial airplanes of Boeing, told a news conference.

In a separate deal, HNA Group, parent of Hainan Airlines Co Ltd <600221.SS>, signed a memorandum of understanding with Boeing to purchase 38 aircraft, including six 777s and 32 787s.

The deals are worth $8.5 billion at list prices.


Asia-Pacific's demand for aircraft will likely form a significant portion of the demand from global airlines, which Boeing said would need 30,900 new passenger freighter aircraft by 2030, valued at $3.6 trillion.

However, analysts are concerned there could be an oversupply in the long term.

"In terms of aircraft orders that is a long-term risk because deliveries take a long time to enter the system," said Andrew Orchard, an analyst at RBS in Hong Kong.

"Boeing and Airbus have a backlog of something like 7,000 planes in total. Right now they are just clearing the backlog of deliveries and so as these new planes come into the industry, that will impact supply and capacity."

In the short term, the industry's outlook will also be clouded by uncertainties in the global economy, such as high oil prices and weakening defense spending, analysts and industry executives said.

"This year will be a bit slower than last year, the reason being that most of the near-term production capacity that we have available has already been sold," Dailey said.

"And so airlines are going to slow down a bit before they make those decisions because they are talking about airplane availability in the 2014/15 time frame," he said.


(Additional reporting by Donny Kwok and Farah Master; Writing by Lee Chyen Yee; Editing by Anshuman Daga)