China urges airlines to cancel, delay plane orders


Jul 2, 2002
Total Time
China urges airlines to cancel, delay plane orders

By CHRISTOPHER BODEEN Associated Press Writer

Dec 9th, 2008 | BEIJING -- China is urging its troubled state-owned airlines to cancel or defer new aircraft purchases amid the global economic turmoil -- a move that could hurt American and European aircraft makers.
Airlines are also being asked not to renew leases for aircraft rented from foreign firms and to ground or sell some planes, according to an announcement seen Wednesday on the Web site of industry regulator the Civil Aviation Administration of China.
No new airlines will be approved for operation before at least 2010 and carriers should switch passenger service to freight where applicable and retire larger numbers of old aircraft, the administration said.
"From the second half of this year, the global economic crisis has had an increasingly negative effect on the development of our civil aviation industry," the administration said.
"We encourage airlines to cancel or defer orders for planes to be delivered in 2009," it said.
A cutback in Chinese purchases could affect global aircraft suppliers such as Chicago-based Boeing Co. and Toulouse, France-based Airbus, both of which have been looking to China's burgeoning travel and freight markets to fuel future demand for their products.
Airlines across the globe are grounding planes, cutting capacity and delaying or even canceling orders for new aircraft as the global economic crisis hits passenger numbers and air cargo.
It wasn't clear how effective the order would be. Although decisions on aircraft orders in China are made by Cabinet-level officials, China's top three airlines -- Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. -- are increasingly forced to conform to the laws of the market.
Airlines are typically required to pay much of the cost of plane in advance, an investment that could be lost in a cancellation, while penalties for doing so can run as high as 10 percent.
"It is almost impossible to defer or cancel airplanes that are already in production and due to be delivered in the coming 3-12 months," said Nicholas Ionides, the regional managing editor of Flight International magazine.
Ionides said the impact on manufacturers would be limited if the suspension of new orders remained short term. While Chinese airlines have been battered -- first by high fuel costs then by low demand -- business is almost certain to recover to the point where many more planes will be needed, he said.
"There shouldn't be really great concern," Ionides said.
In China's most recent major aircraft order, Air China Ltd. said in July it was buying 45 Boeing jetliners, one of China's biggest purchases to date. The list price for the aircraft is $6.3 billion but Air China said its final price would be lower.
Airbus says it has firmed up 140 out of 160 orders for its jets from China placed last November.
Chinese carriers have been squeezed by high oil prices and falling passenger and cargo revenues. State-owned airlines had total losses of about 4.2 billion yuan ($615 million) in the first 10 months of this year, according to the government.
Two of China's three major carriers have turned to the government for financial aid. China Southern Airlines said last month it will receive a 3 billion yuan ($440 million) capital injection from the government, and China Eastern Airlines is seeking similar help.
The administration's announcement pledged subsidies for carriers serving less traveled routes and the waiving of a series of fees and taxes. Those include the return of and future exemption from a total of 4 billion yuan ($582 million) in airport development fees covering the second half of this year and first half of 2009.
Another 10 billion yuan ($1.45 billion) would be invested in upgrading airport safety, and money saving concessions made on fuel, landing fees, and other services, the announcement said.
Mainland Chinese airliners operate a fleet of 1,208 planes, of which Boeing has a 57 percent share. Airbus accounts for 399 planes, or 33 percent, while the remainder were from other manufacturers such as Brazil's Embraer, according to Boeing's statistics.
Boeing has forecast that 3,400 additional jetliners will be needed by Chinese airlines over the next 20 years. China hopes its nascent domestic aircraft industry will be able to meet some of that demand, although its planes are still years from hitting the market.