China Eastern Swaps 787 Order for 737s

 - October 18, 2011, 11:29 AM
Part of a block order by Chinese airlines for 60 Dreamliners, China Eastern’s order for 24 of the airplanes will no longer appear on Boeing’s books. (Photo: Boeing)

Stung by development delays and now intent on shifting its emphasis from long-haul to regional and domestic services, China Eastern Airlines on October 17 announced a decision to cancel orders for 24 Boeing 787s in favor of a new order for 45 Boeing 737NGs. Still subject to Chinese government approval, the substitution would result in the cancellation of delivery of 15 Dreamliners to China Eastern and nine to subsidiary Shanghai Airlines.

The value of the new deal for 737s, estimated at $3.3 billion based on 2008 catalog prices, “is comparable” to the value of the Dreamliner order, said China Eastern in a filing with the Hong Kong Stock Exchange. China Eastern said it expects delivery of the new 737s “in stages” between 2014 and 2016.

The airline said it would use the 737s to satisfy the increasing demand of the domestic passenger market as well as the international and regional medium- and short-haul markets. It expects the addition of the airplanes to increase capacity by some 8.65 percent over its total on Dec. 31, 2010.

China Eastern specifically listed as one of the reasons for the so-called termination agreement Boeing’s delay in delivering the 787s. Boeing has agreed to pay a “certain amount” of compensation to the airline, which, it said, it will use to pay for part of the 737 order. 

However, in a statement sent to AIN, Boeing said the reason for China Eastern’s decision centered on “operational considerations.”

“These 24 787s were part of an agreement between Boeing and Chinese government for the purchase of 60 787s,” said Boeing. “We will continue to work closely with the Chinese government and customers to find solutions that meet the future fleet needs of Chinese airlines.

“The other currently committed Chinese airlines (Air China, China Southern and Hainan Airlines) remain committed to the 787,” added Boeing.

China Eastern also said in a separate filing that it would place a $2.535 billion order for 15 Airbus A330s–airplane types whose seating capacity generally fall within the range of the 787s. The airline said it expects delivery of those airplanes between 2013 and 2015, resulting in a capacity increase of 9.41 percent.

Meanwhile, the airline also said it would send five A340-300s back to Airbus, to “lower the unit operation cost of the company and increase the degree of comfort for medium-and-long-haul route passenger air transportation for our customers.”

For Boeing, China Eastern’s decision amounts to one of the largest cancellations for the Dreamliner, whose backlog had already shrunk by 26 airplanes this year as of October 18. Including the China Eastern cancellation, Boeing’s order total for the Dreamliner would stand at 797.