Chinese officials are set to sign a preliminary agreement with Boeing today to buy 60 7E7s, the company's largest order to date of the new...
Chinese officials are set to sign a preliminary agreement with Boeing today to buy 60 7E7s, the company’s largest order to date of the new fuel-efficient jets.
The planes have a list price of $120 million each, making the China sale worth $7.2 billion, but such orders typically come with heavy discounts.
The deal will help Boeing meet a major goal of making further inroads into aviation’s biggest growth market of the future. To help woo China, Boeing plans to open a $100 million service center this year in Shanghai.
Boeing Commercial Airplanes CEO Alan Mulally is scheduled to attend a signing ceremony today at the Commerce Department in Washington, D.C., with U.S. government officials, Chinese ambassador Yang Jiechi and Chinese aviation executives.
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Following that, Mike Bair, vice president and general manager of the 7E7 program, has scheduled a news conference with reporters.
Boeing has pursued the sale for at least a year while rival Airbus has steadily increased its market share in China.
The six Chinese airlines that have expressed an intent to buy 7E7s are Air China, China Southern Airlines, China Eastern Airlines, Shanghai Airlines, Hainan Airlines and Xiamen Airlines. It is unclear how many planes, or which versions of the 7E7, each airline would buy.
All six airlines received formal sales proposals from Boeing about 10 months ago. The airlines require Chinese government approval for the purchase to go forward. The deal is not finalized and it is unclear how close it is to completion.
“At this time we’re not ready to disclose that,” Boeing spokeswoman May Kulthol said.
But Chinese airlines hope to take delivery of the planes in time for the 2008 Olympics in Beijing. Three major airlines have emerged in China after a massive reorganization over the past five years: Beijing-based Air China, the country’s largest international carrier; China Southern, based in Guangzhou, which operates China’s largest domestic network and largest fleet; and Shanghai-based China Eastern.
Smaller Shanghai, Hainan and Xiamen airlines operate mostly regional routes within China. Hainan, based on China’s southernmost Hainan Island, has listed its stock on Hong Kong and New York exchanges and is making efforts to expand internationally this year.
As China ramps up its aviation sector over the next two decades, it plans to buy more than 2,000 planes.
Although most Chinese airlines are state-run, they have substantial control over the planes they order. But in recent years, the central government policy is to maintain a balance between the two major suppliers, Boeing and Airbus.
China is also developing its own 70-passenger regional jet.
Boeing’s announcement comes soon after Airbus said it signed a deal with China Southern for five A380s, the world’s largest passenger plane, less than two weeks after the plane was unveiled. A formal announcement of that deal is also expected today.
The 7E7, due to enter service in 2008, will carry 200 to 300 passengers and fly routes between 3,500 and 8,500 nautical miles. The plane gets greater fuel efficiency and speed from its construction of lightweight composite parts, some of which will be built in China.
Chinese leaders are eager for even more parts manufacturing to be done there, in addition to the work its state-run companies already do on sections of Boeing and Airbus planes.
And there are looming political issues, too. Chinese government officials have expressed anger over U.S. military sales to Taiwan, which China considers a break-away province. It remains to be seen what concessions the final sale to China may require.
This year, Boeing is ramping up its operations in China, with plans to open a maintenance-and-repair center in Shanghai that would employ up to 1,000 people, said Boeing China President David Wang. Boeing and joint-venture partner Shanghai Airlines together will invest up to $100 million in the center.
Airbus recently announced plans to enter into a risk-sharing partnership with China to allow China to build 5 percent of the new A350, which will compete head-to-head with 7E7.
Boeing, whose major 7E7 risk-sharing partner is Japan, may consider some risk-sharing partnership with China, Wang said.
Boeing has 56 firm orders for the 7E7, and has previously announced 70 other preliminary orders for the plane.
Kristi Heim: 206-464-2718 or email@example.com