April 26, 2012 / 6:09 PM / in 7 years

China buys Boeing 777s, delays Airbus deal: sources

(Reuters) - China Eastern Airlines (0670.HK) is set to place a $6 billion order for up to 20 Boeing (BA.N) 777 jets, while simultaneously emerging at the centre of an aviation row between China and the European Union by stalling a recent Airbus deal, people familiar with the matter said.

The first Boeing 777 Freighter take off on its inaugural test flight at Paine Field in Everett, Washington, July 14, 2008. REUTERS/Robert Sorbo

The order for wide-body 777s follows a fierce but discreet contest between Boeing and Airbus and allows the U.S. planemaker to bounce back after China’s third-largest airline cancelled an order for 24 of its latest flagship 787 Dreamliners last year.

Besides handing the 777 order to Boeing, China Eastern is stalling on the completion of a $3 billion order for 15 Airbus A330 aircraft announced last October, two of the people said.

Boeing, Airbus and China Eastern declined to comment.

The deals took shape at different times and for different plane types, but together they highlight the stakes involved as planemakers court the world’s fastest-growing aviation market under the shadow of a recent trade dispute between China and Europe.

China and more than 20 nations oppose EU plans to force airlines to adopt a carbon emissions-capping scheme that they say will penalize foreign long-haul carriers and infringe sovereignty. Airbus has said some plane sales could be threatened.

The EU says its Emissions Trading Scheme (ETS) is needed to meet climate targets and fill a void left by years of international inaction over airline emissions.

Boeing and its European competitor Airbus EAD.PA are betting on new Chinese wealth and government infrastructure spending to bolster travel in the country, where domestic passenger traffic is growing rapidly.

Chinese domestic air traffic is expected to grow by an average of 7.5 percent per year until 2030, about three times the rate in North America, and by around 7 percent on inter-continental routes to and from China, according to Boeing.

In September, the U.S. jetmaker boosted its demand forecast for China by 25 percent, predicting that it would need 5,000 commercial aircraft worth $600 billion over the next 20 years.

China earlier this month reported its weakest quarterly economic growth in nearly three years, but Western plane manufacturers believe the 8.1 percent first-quarter expansion will continue to suck in regular imports of foreign jets.

The first 787 cancellation by a Chinese airline was widely seen as a setback for Boeing, but the U.S. company has also been riding high on record orders last year for the 777, which dominates the market for aircraft with just under 400 seats.

Boeing said last month it was confident of selling China more 777s and was in advanced talks with an unnamed airline.

China Eastern is the third-largest mainland carrier by market value and second largest by domestic traffic, according to airlines body IATA. Its board is expected to meet on Friday.

The company and its subsidiary Shanghai Airlines currently operate a mixed fleet of Airbus and Boeing short-haul jets and over 40 mainly Airbus long-haul aircraft.

The airline said in October it would place an order for 15 Airbus A330 aircraft subject to Chinese government approval, but analysis of the Airbus order book suggests the necessary backing has not yet materialized.

China Eastern said in October would return five long-range A340s to Airbus at the same time as placing an order for 15 smaller A330s. Airbus has stopped producing the four-engined A340, which was heavily outsold by Boeing’s twin-engine 777.

The second-hand A340s, which are less fuel-efficient than twin-engine jets and expensive to convert, may be broken up and sold for parts if Airbus cannot find a buyer, market experts said.

Reporting by Tim Hepher, Kyle Peterson, Fang Yan

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