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) - Get Report 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.
“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) - Get Report 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.”
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.”
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.
China Southern launched its first route to the U.S. when it began Guangzhou-LAX service in 1997. “For a decade we’ve been analyzing the viability of launching new routes to New York,” Si said. “(But) before we took a 777-300 ER we did not have the right aircraft to serve New York routes. China Southern purchased the aircraft for this new service.”
A Rand Corporation report, issued in April, said China should get out of the aircraft manufacturing business, where it is hopelessly behind Airbus and Boeing and losing ground.
Commercial aviation manufacturing is a huge waste of money for China," said Keith Crane, director of the Rand Environment, Energy and Economic Development program and co-author of the report "The Effectiveness of China's Industrial Policies in Commercial Aviation Manufacturing."
China has spent more than $7 billion to develop the C919. The problem is that "by the time it gets out there in the market, it will be a full generation behind the Boeing 737MAX and the Airbus A320neo," Crane said in an April interview.
Boeing projects that Chinese carriers will take delivery of 5,580 new planes in the next two decades, with about 70% in the narrowbody segment led by the Boeing 737 and the A320.
Written by Ted Reed in Charlotte, N.C.
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