China's appetite for 737 shows no sign of slowing

Yesterday morning, Wu Rongnan, president of Xiamen Airlines, flew off from Boeing Field in a brand new 737-700, the first of five he's taking this year.

While he was still en route to China, news of an order for 45 more Renton-built 737s came from Xiamen's parent company.

In a Shanghai stock-exchange filing, China Southern — which owns 60 percent of Xiamen — said it has ordered 12 737-700s and 18 737-800s for its network and 15 more 737-800s for Xiamen.

The new order shows there's no letup in Chinese airline growth. Boeing projects average growth of 8.1 percent in air traffic on Chinese domestic routes during the next 20 years, compared with 5.2 percent globally.

The deal is worth about $2.8 billion at list prices. However, steep discounts are typical with large orders.

According to the official Xinhua news agency, which cited airline sources, Bank of China last week signed an agreement with Xiamen to offer credits totaling $133 million for the purchase of the five 737-700s to be delivered in 2005.

Since airlines typically pay 70 percent of the price upon delivery, that bank credit would place the price tag at about $38 million per airplane, compared with the list price of $55 million. At a similar discount, the new order's actual value would be just shy of $2 billion.

China Southern, the country's biggest airline, operated 231 aircraft at the end of 2004, when it took delivery of the last of a previous order for 20 737-700s.

In January, China Southern ordered 10 Boeing 787s, two of which are scheduled for delivery before the Beijing Olympics open in August 2008. The same month, the airline also placed an order for five Airbus A380 superjumbos.

Xiamen Airlines is a 20-year-old carrier based in Xiamen, a seaport in southeast Fujian province across the straits from Taiwan. A busy economic-development zone, it has attracted investment and more than a million business people from Taiwan.

In a recent interview, Wu Rongnan said he intends to double his fleet in the next five years, adding 30 new planes.

Wu's airline is the only Chinese carrier with an all-Boeing fleet. It has also ordered three 787s.

If relations between the mainland and Taiwan improve, Wu said, the airline plans to expand with a direct shuttle service from Fujian province to the island.

Last week, the Chinese government lifted a ban on Chinese travelers visiting Taiwan.

As the Chinese airplane market grows rapidly, Boeing and Airbus have been battling to win sales, while the Chinese are content to divide the orders in a market once dominated by Boeing.

The Airbus fleet in service in China has grown from just 29 jets in 1995 to more than 280 today.

Part of the Airbus strategy has been to place work there, including key work on the A320, the rival to the 737.

In 1999, Airbus agreed to outsource the technology and tooling for manufacture of the A320 wings, currently built in an Airbus factory in Wales.

Last month in Beijing, Chinese Premier Wen Jiabao and French Prime Minister Jean-Pierre Raffarin signed the $70 million third phase of the deal, which will enable Chinese suppliers to produce complete wings.

To further promote its narrow-bodies in the country, Airbus yesterday announced that this summer it will donate a set of A320 flight simulators to the Civil Aviation Flight University of China.

Material from Bloomberg was included in this report.

Low-fare SkyEurope places orders for 737s

All the planes will go to SkyEurope Airlines, an Eastern European low-fare airline. SkyEurope will buy four 737 jets from Boeing and lease a dozen more from GE Commercial Aviation Services (GECAS).

GECAS will provide half of the leased jets from a previous order and has placed a new firm order for the remaining six.

Headquartered in Bratislava, Slovakia, SkyEurope also has bases in Krakow and Warsaw, Poland, and in Budapest, Hungary. It operates a fleet of seven 737-500s and some regional jets.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Kristi Heim: 206-464-2718 or kheim@seattletimes.com