China Eastern Cancels Order For 24 Boeing 787s

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Published: October 17, 2011

China Eastern Airlines said it has terminated an order for 24 Boeing 787 Dreamliners due to delivery delays and will instead spend USD$ 3.3 billion to purchase 45 new Boeing 737 aircraft.

In a filing with the Hong Kong stock exchange on Monday, the Shanghai-based Chinese carrier also said it would buy 15 Airbus A330s worth USD$ 2.5 billion, due for delivery from 2013 to 2015.

While the narrow-body 737 is not an obvious replacement for the wide-body 787, the A330 is a competitor to the Dreamliner. The purchase of the A330s by China Eastern may put new pressure on Boeing to produce the overdue 787s rapidly to avoid more cancellations.

“China Eastern is using the delays as an excuse, and Airbus came in with a very aggressive price,” said Alex Hamilton, managing director of EarlyBirdCapital.

“That said, all this highlights the risk to the 787 backlog, especially if they can’t get to 10 per month,” Hamilton said referring to Boeing’s 787 production target.

“This is the first time we’ve seen this,” he said. “My guess is they sort of expected this to come.”

Boeing said the 24 787s, which list at USD$ 185 million each, were part of an agreement between Boeing and the Chinese government for the purchase of 60 787s.

“China Eastern Airlines made the decision based on operational considerations,” Boeing spokesman Marc Birtel said. “We will continue to work closely with the Chinese government and customers to find solutions that meet the future fleet needs of the Chinese airlines.”

The Boeing 787 is about three years behind its original schedule because of kinks in the sprawling global supply chain.

But Boeing still has more than 800 orders for the lightweight, carbon-composite aircraft on its books. The company made first delivery of the 787 to All Nippon Airways last month.

In its Monday filing, China Eastern also said it plans to dispose of five Airbus A340-300s.

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