China Eastern orders 20 Airbuses

Shanghai-based carrier to pay US$3.4 billion for mid-range aircraft to upgrade and expand regional fleet

China Eastern Airlines, the mainland's No3 carrier by capacity, has agreed to pay Airbus up to US$3.4 billion for 20 new aircraft to upgrade and expand its regional fleet.

The deal, signed at the weekend on the sidelines of a visit by French President Jacques Chirac, is the first on the mainland for A330-300 aircraft, for which the airline will pay US$162.9 million to $170 million per unit, according to China Eastern's statement to the Shanghai Stock Exchange.

'This agreement marks a new milestone in the long-standing co-operation between our companies,' said Airbus chief executive Noel Forgeard.

China Eastern said it would fund the purchase through bank loans but that the increased debt-to-equity ratio would not hamper its cash flow, without providing details.

The deal will be seen as a setback for Boeing.

The American company has aggressively marketed its new B7E7 Dreamliner in China as an alternative to the A330.

It has just 52 of the 200 orders for the new aircraft it expects by year's end.

'For airlines looking to buy aircraft of this capacity they need replacements now rather than later,' said Airbus' Singapore-based spokesman Anthony Phillips.

The first deliveries of Boeing's futuristic new aircraft are expected in 2008.

All the A330s, which have a maximum range of 10,500 kilometres, will be delivered by August 2008 with the first to come in January 2006.

However, analysts said that with China Eastern operating the biggest Airbus fleet in Asia, it was unlikely Boeing had pinned its hopes for a mainland breakthrough on the Shanghai-based airline.

The A330s will replace 19 smaller, single-aisle A300s and A310s, and are expected to mostly serve markets within a five- or six-hour flight from China Eastern's Shanghai base.

'They will probably be put to work on regional routes such as Japan and South Korea. The added capacity will help them to save money,' said Michael Chan, head of transport and logistics research at Bank of China (International). 'Longer term, western Europe and Russia are also potential destinations.'

The mid-range aircraft is also popular among airlines for its ability to carry freight - up to 20 tonnes - to supplement dwindling passenger revenues in the off-peak seasons.

China Eastern said the freight-carrying capacity of its passenger fleet would be expanded by 27 per cent after the 20 aircraft had been delivered.

Trading of shares in the carrier's Hong Kong-listed vehicle was halted yesterday pending an announcement.