The A330 may be a big winner in the avalanche of orders that China announces this year
If any market will add a few years of production to the in its current form, it will be China. Widebodies, mainly A330-300s, are appearing in increasing numbers on the country's major air routes, and that trend can only continue, as the Chinese air force shows little sign of making much more airspace available to commercial aviation.
In the great wave of orders that China will announce this year for its 2016-20 economic planning period, perhaps totaling 1,000 aircraft, a key issue will be to what extent Airbus is able to persuade the government and airlines to substitute A330s for narrowbodies. Roughly speaking, an A330-300 can displace two narrowbodies, so if China splits the orders for single-aisle aircraft about evenly between Airbus and, then each A330 sale means one less and one less 737, with Boeing as the net loser.
For Airbus, big Chinese orders are all the more valuable because the A330 backlog is shrinking. Orders for 77 were taken in 2013, but production is running at 10 a month. Indeed, it may turn out that the Chinese air force is ultimately responsible for keeping the A330 production line busy while Airbus develops an upgrade with enough improvements to face the-10 (AW&ST Feb. 17, p. 24).
Orders or intended orders for at least 70 and possibly as many as 200 A330s will be revealed when President Xi Jinping and other leaders visit France this month, say two industry officials familiar with negotiations. The exact number remains undetermined.
Airbus seems to be particularly targeting the figure of 200, since another industry official says that was the number it proposed as justifying its offer to set up a completion center for type in China (AW&ST Feb. 3, p. 52). Since the quantity to be announced next month remains in doubt, building the plant must also be part of the negotiations.
A330 orders will be just some of the huge quantity of officially coordinated purchase decisions with which China will finalize its aircraft supplies for 2016-20. CFM Executive Vice President Chaker Chahrour expects announcements this year involving 800-1,000 aircraft. Around 80% will be for narrowbodies, Chahrour told reporters at the Singapore Airshow last month. That implies an unfilled Chinese requirement for 160-200 widebodies.
Another manufacturing industry official says China's announcements this year could exceed 1,000 aircraft. This is less dramatic than it appears, however, because the airframe and engine manufacturers have long known that China needed to order aircraft in approximately those volumes to feed airline capacity up to 2020. Production slots have been reserved for China, although the OEMs, especially the engine companies, have to cope with uncertainty about how orders will be shared. Some of the â€śordersâ€ť may be only intended contracts, and it is possible that major announcements will be delayed to 2015.
The Chinese announcement in France will cover some A330-200s, even though demand for that long-range model has greatly diminished due to competition from the 787. Some A330-300s will be certified at less than the designed gross weight, to save on maintenance costs and airport fees. Airbus is promoting such paperwork as creating a new version of the A330-300, but the airframe and engines are unchanged; full weight can be restored with new documents.
Minsheng Financial Leasing is negotiating an order for about 25 lighter-weight A330s, andalso may take 15 of those. If these negotiations are settled in time for this month's announcement, they will almost certainly be included.
Mainland China's 10 biggest domestic air routes connect Beijing, Shanghai and Guangzhou with each other and Shenzhen, Chengdu, Xiamen and Xian, according to 2012 data compiled by Amadeus. Widebodies are used on all of those routes except for the 800-km (500-mi.) link between Shanghai and Xiamen, on which the, the largest narrowbody, is often seen. The air force's habit of allowing only incremental additions to commercially available airspace gives little hope that capacity on those routes can be greatly increased except by adding more widebodies.
Boeing, lacking a modern widebody suitable for moderate ranges, is encouraging the airlines to bypass the congested airports as much as possible by offering direct flights to smaller destinations. The U.S. manufacturer also disputes that the A330-300, designed for a 242-metric-ton gross weight that hardly suits 2-hr. hops, is more economical than the 737. But economy is not the main issue for these big routes; the airlines just need more capacity.
Apart from looking forward to its share of narrowbody contracts, Boeing must be hoping that Chinese carriers finally warm to the 787, which the three biggest airlines ordered in only limited quantities in 2005 and not since. Indeed, China Eastern canceled its 787 order in 2011. But the airlines are under government orders to develop their international businesses, a task for which the 787, with its long range and moderate seating capacity, should be ideal.
The financial leasing arm of giant Industrial and Commercial Bank of China is likely to order, say two industry executives. The quantity is unclear, but the aircraft need not be part of China's 2016-20 aircraft supply, since ICBC Financial Leasing could place them with foreign airlines. The lessor is also considering a 787 order.
China's order avalanche has already begun. China Eastern will take delivery of 70 Airbusin 2018-20 under an order with a catalog value of $6.4 billionâ€”the first Chinese order for the re-engined A320. Airbus will buy back seven A300-600s from the state carrier. Shenzhen-based Donghai Airlines, meanwhile, has ordered 25 .
Juneyao Airlines, based in Shanghai, will order 50 Boeing 737sâ€”including 20-30 737 MAXs withenginesâ€”under an unannounced memorandum of understanding signed last month to allocate to Jiu Yuan Airlines, its proposed budget carrier, say industry officials. In addition, the officials say, Juneyao will order 40 A320s for its own fleet; it is unclear if that deal has become a definitive order. The choice of engine supplier is also unknown, but Juneyao's current fleet of 32 A320s and two A321s is powered by -5 engines, according to Aviation Week data.
In January, the Civil Aviation Administration of China approved the application to set up Jiu Yuan, which will be based in Guangzhou. Several months, sometimes more than a year, can elapse between approval of a Chinese airline and the beginning of operations. Juneyao will own 69% of the shares in Jiu Yuan Airlines. The name Jiu Yuan means 9 yuan ($1.50) and is presumably intended to underscore the cheapness of the air fares. An English name could appear later.
Approval for Jiu Yuan came with the condition that it operate A320s, as Juneyao does. Juneyao probably plans for Jiu Yuan to use the type only at first, move to an all-737 fleet as the Boeing aircraft are delivered, and pass the A320s to the parent airline. Juneyao may be looking for early delivery of some of the 40 A320s, or perhaps plans to lease some others, because its announced backlog is limited to three A321s. That would not long sustain the growth of Juneyao itself, let alone support setting up a new airline.
Jiu Yuan is part of the newâ€”some would say belatedâ€”phenomenon of low-cost carriers in China, hitherto largely restricted to Shanghai's Spring Airlines. This also will affect the balance of aircraft orders for the 2016-20 planning period, since budget carriers almost always begin operations with standard narrowbodies of the 737 or A320 families. Yet their growth will to some extent be limited by the air force's insistence on keeping the great bulk of Chinese skies for its own useâ€”unless these new carriers can make a living by plying low-volume routes with plenty of airspace capacity.
Donghai will introduce six aircraft into its fleet annually for the next several years, President Su Guoxin tells local media. The fleet will be mainly composed of 737-800s, including four that the company has agreed to lease from ILFC. Donghai has one 737-800 and five 737-300s, the latter converted to freighter configuration, according to Aviation Week data.