Boeing Co. has reached an agreement to sell 60 of its new 7E7 airplanes to a group of six Chinese carriers, a deal worth as much as $7.2 billion and a boost in the company's global competition with rival Airbus SAS, according to a source familiar with the transaction.
The deal would breathe oxygen into Boeing's fledgling effort to build its first new airplane in over a decade. Boeing, which fell behind France-based Airbus in 2003 as the world's largest commercial aircraft manufacturer, has said its 7E7 Dreamliner was designed specifically with a market like China in mind. A substantial order from the rapidly growing aviation market in Asia was viewed by the industry's analysts as critical to the plane's success.
The Chinese order for 60 7E7s, which are to be driven by Rolls-Royce engines, would breathe oxygen into Boeing's fledgling effort to build its first new airplane in more than a decade.
(Kin Cheung -- Reuters)
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The deal "is extremely big," said aviation analyst Richard L. Aboulafia of Teal Group Corp. "Not just in terms of numbers, it's broad in terms of carriers. Each will probably place follow-on orders. It's a real endorsement of Boeing's philosophy."
It also comes at a sensitive time in Chinese-American trade relations, with U.S. manufacturers and others arguing that China needs to change a set of controversial currency policies that keep its goods comparatively cheap on world markets. The United States runs a roughly $16 billion monthly trade deficit with China, and the aircraft sale will help ease that gap.
Boeing declined to comment on the details of the deal yesterday evening. The company announced it would hold a news conference today at the Department of Commerce with Chinese officials. "Boeing and China have reached a substantial agreement that deepens our long-lasting relationship," said Boeing spokeswoman Amanda Landers. "We'll share the details of this agreement along with our customer on Friday."
The 200- to 300-seat 7E7 will replace the company's 767 aircraft and is designed to fly international routes but has new features such as fuel-efficient engines and a fuselage made of lighter-weight carbon fiber materials instead of aluminum. The first of the new planes are expected to be delivered in 2008.
Boeing fell well short of its goal last year to have 200 orders for the new aircraft by the end of 2004 and instead announced orders for 126. The lack of orders stood in stark contrast to those piling up for Airbus, which is launching its own new aircraft in 2006, a super-jumbo jet that will seat 550 passengers on two decks. The bitter commercial rivalry between the two companies erupted into a trade dispute last year between the United States and Europe over subsidies to each company. Both sides recently agreed to settle the dispute instead of pursuing formal action before the World Trade Organization.
Aviation analyst Robbin Laird said the orders affirmed Boeing's forecast that the rising cost of fuel will prompt airlines to buy more fuel-efficient airplanes. Both Airbus and Boeing have targeted China in designing their new airplanes. The country has been one of the hottest growth spots in aviation, with new airports and airlines and even low-cost airlines sprouting up every year.
"Both companies are competing heavily to be involved in the aerospace business in China," Laird said. "The major challenge will now be in the United States, to basically come to terms with the rising Chinese economic power -- it's both a partnership and a competition."
Airbus, which just threw itself a huge party at its headquarters in Toulouse, France, to publicly reveal the new A380, is expected to announce five new orders for the super-jumbo from China Southern Airlines, according to news reports in Europe. Air China yesterday announced an order for 20 A330s, a double-aisle aircraft that competes with Boeing's 767.
The 7E7's other large orders have come from Japanese customers All Nippon Airways and Japan Airlines, which were not surprising because Japan is supplying a substantial portion of the new plane's fuselage materials. Continental Airlines, the only U.S. airline to order either the new Airbus or Boeing aircraft, announced an order for 10 7E7s in late December.
Sen. Maria Cantwell (D-Wash.) met with Chinese officials yesterday. Boeing, which moved its headquarters to Chicago from Seattle to focus on military contracts, has laid off thousands of employees since the terrorist attacks in 2001. In a statement, Cantwell said a deal with China would be "a great shot in the arm for our state's economy and family-wage jobs."
