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TheStreet Open House

Boeing, Airbus Get Nods at China Southern; Chinese-Built C919 Gets a Maybe


Story has been updated to reflect pre-market trading in Boeing and China Southern shares.

NEW YORK (TheStreet) -- The chairman of China Southern Airlines (ZNH) last week endorsed the concept of a Chinese-built narrowbody aircraft. It’s just not clear whether China Southern would ever buy one.

“It’s our nation’s national strategy to develop our own aircraft,” China Southern Chairman Si Xianmin told reporters last week in New York, as Asia’s largest carrier launched Guangzhou-New York service. “I am fully confident of this aircraft.

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“I don’t think it will be a strange thing for Chinese airlines to use made-in -China aircraft,” Si said, through a translator. However, asked whether China Southern will order the Comac C919 narrowbody, Si responded: “It’s not out of assembly so I cannot tell you yet.”

An April report by the Rand Corporation cited the ABCD list as showing that China Southern has ordered five C919s and has options on an additional 15 -- the same order structure that China Eastern (CEA) has. Because Comac, the Commercial Aircraft Corporation of China, has not set pricing, these need not be considered as formal orders.

U.S. experts said Si is treading the line between following the Chinese government’s policy and running a profitable airline.

“There are things you have to say because the authorities make you say them,” said Richard Aboulafia, aerospace analyst at the Teal Group. “That is what [Si] was doing in the interview.

“But airlines do what they want,” Aboulafia said. “They have to make money and survive.”

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In May, China Southern said it had placed an order with Airbus for 80 narrowbody aircraft, including 50 A320neo airplanes and 30 A320s, with deliveries between 2016 and 2020. Airbus has been assembling narrowbody aircraft in China since it opened a Tianjin assembly plant in 2008. In March, China President Xi Jinping and Airbus agreed to extend the plant’s contract with Airbus through 2026. Airbus has a 51% stake in the plant.

Aboulafia said the decision to build the A320neo in Tianjin represents a crushing blow for the C919. ”There was a chance that political pressure to take the C191 would build, but now Airbus builds in China,” he said. “If you are trying to do the right thing and take aircraft built in China, you can do that now.”

China Southern’s fleet of 466 aircraft includes 259 Airbus jets and 188 Boeing (BA) jets. China Southern is the only Chinese airline flying both the A380 and the 787.

Si told reporters that taking delivery of the airline’s first two Boeing 777 300ERs enabled China Southern to fly Guangzhou-JFK New York, because the aircraft had the range to fly the 8,014-mile route.

In premarket trading about an hour before the opening bell, Boeing shares were up 53 cents to $121. Boeing is down 12% year-to-date. Also in premarket trading, China Southern shares were up 25 cents to $17.50. China Southern is down 13% year-to-date.

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