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China Jet Deal Bolsters Boeing's Lead Over Airbus

March 25, 1997|From Bloomberg News

BEIJING — The sale to China Air of five Boeing 777 jetliners for about $685 million represents the company's biggest deal with a Chinese airline in two years and bolsters its lead over rival Airbus Industrie in the fast-growing China market.

The sale, announced today, marks a breakthrough for Boeing, whose business in China stalled last year because of the country's trade friction with the United States. The transaction coincides with a visit by Vice President Al Gore, the most senior U.S. official to visit China since President Bush in 1989.

"This would break the political logjam," said Bill Whitlow, an analyst at Pacific Crest Securities in Seattle. "There are a lot of potential orders that could follow."

The sale to Air China--the nation's largest airline--is Boeing's biggest since it sold Yunnan Airlines six 767-300 jets for $600 million in 1995. Each Boeing 777 has a list price of as much as $140 million, including spare parts, valuing the sale at about $685 million.

U.S. analysts have been expecting Air China to order as many as 10 777s, which are twin-engine jets designed to carry about 350 passengers on long international flights.

China's air travel market will grow at about 11% a year for 20 years, or more than twice as fast as that of the rest of the world, according to Boeing estimates. Chinese airlines plan to order $124 billion worth of planes in that time to meet demand, Boeing has said.

Boeing has blamed its sales problems in China on a series of U.S.-Sino disagreements over human rights, Taiwan, software piracy and other issues. China has delayed about $3 billion of orders because of the disputes, Boeing said.

Boeing had a virtual lock on China's business after 1972, when President Nixon arrived in Beijing on a Boeing 707. China soon after ordered its first 10 Boeing jets.

Boeing now claims about 60% of China's fleet, with 243 aircraft in service. That's nearly four times the number of Airbus planes flown by Chinese airlines.

China bought its first Airbus in 1985, and the European consortium chipped away at Boeing's dominance. Last year, Airbus sold 33 planes valued at $1.5 billion to China. Boeing sold only three, worth $570 million, as trade tensions escalated.

This year has been better for Boeing, with sales of two 747s to Air China and two 737-300s to Yunnan Airlines, both in January. The two sales were valued at about $450 million.

Airbus hasn't announced any new sales to China this year.

Pratt & Whitney, a unit of United Technologies, is the most likely supplier of engines for the five 777s, analysts said. Air China's entire fleet of wide-body aircraft is powered by Pratt & Whitney engines, giving the Hartford, Conn.-based company an edge over rivals General Electric and Rolls-Royce.

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