On the evening of July 1, the three airlines Air China, China Eastern Airlines, and China Southern Airlines announced successively the purchase of a total of 292 aircraft from Airbus. According to the list price, the total value of the three orders is about USD 37.257 billion. Specifically, Air China, China Eastern Airlines, and China Southern Airlines will acquire 96 (with 32 bound for Shenzhen Air), 100, and 96 aircraft respectively, all of which are A320neos. The orders will mainly be delivered in batches starting in 2024, and the delivery schedule will be completed by 2027 at the latest.
According to industry practice, the list price is the "quoted price" rather than the actual transaction price. For a special commodity such as aircraft, in actual transactions, the more an airline company acquires, the greater the discount given by the manufacturer. For example, the actual transaction price of Boeing 737 is generally between USD 50 million to USD 60 million, which is not a secret in the industry. In commercial operations, Boeing and Airbus generally use the "accessory package" method to obscure the price, including "spare parts", "technical support" and "training" in the contract to cover up the real selling price of the aircraft. It is estimated that in this huge Airbus deal, the actual transaction price of Chinese airlines will be much lower than the quoted price.
The last time a Chinese airline made a large acquisition of civil aircraft was in March 2019. At the time of President Xi Jinping's visit to France, China Aviation Supplies Group and Airbus signed an agreement to purchase 300 Airbus aircraft, including 290 A320 planes and 10 A350XWB series. The total value of the order at the time was more than USD 35 billion. After a lapse of three years, China has once again placed a larger order on Airbus in Europe. It can be seen that the Chinese market has an obvious preference for Airbus.
In the past, when China purchased civil aviation aircraft, the long-standing practice was to balance the United States and Europe, i.e., first there would be a large order for the U.S.' Boeing, then another large order for Airbus. Since civil aviation is an important industry both in the United States and Europe, China's balancing trade practice is necessary for the country to maintain economic relations with the two. Now, it has broken the balance and tilted towards Europe, which immediately attracted attention internationally and within the country itself.
It is worth noting that, as a competitor of Airbus, Boeing has not received a large purchase order from China for a long time. The last major order was in November 2017, during the visit of former U.S. President Donald Trump to China, the China Aerospace Science and Technology Corporation (CASC) and Boeing signed a purchase agreement for 300 Boeing aircraft, including 260 B737 series and 40 B787. The total value of the order exceeds USD 37 billion. Since then, U.S.-China relations have continued to deteriorate and spread from trade to other areas, finally evolving into a comprehensive degradation of geopolitical and geo-economic relations between the two countries. In March 2019, China took the lead in grounding the Boeing 737MAX due to two major air crashes of the Boeing 737MAX aircraft within six months. Changes in bilateral relations have inevitably affected the aircraft procurement market.
Boeing is certainly well aware of this situation. "As a top U.S. exporter with a 50-year relationship with China's aviation industry, it is disappointing that geopolitical differences continue to constrain U.S. aircraft exports," a Boeing spokesperson said. Boeing's sales have always supported tens of thousands of jobs in the United States, hence it expressed the hope to resume orders with China quickly. According to media reports, Boeing has delivered only one commercial aircraft to China so far this year, while Airbus has delivered 47. Airbus painted the order as a "purely commercial victory", saying this demonstrated China's "strong confidence in Airbus". Boeing expressed disappointment at Chinese airlines' order for 292 Airbus planes, arguing that "productive dialogue" between European governments and China led to the major acquisition, and urged the U.S. and Chinese governments to have effective discussions.
Geopolitical factors are, of course, the key reason for the tilting of the Chinese market to Airbus. Judging from the U.S. government's China policy in the past two years, the U.S. has listed China as its topmost strategic competitor. The relationship friction between the two has far surpassed disputes over commercial interests and turned to a full range of geopolitical rivalry and conflicts. In the U.S. foreign policy, the core is the strategy of "containment".
Since the pro-establishment Biden administration took office, the U.S.-China relationship has not improved substantially. In fact, it has even continued deteriorating in some areas. Against this background, it will be difficult for China to reach major deals with Boeing. Researchers at ANBOUND expect that, under the dominance of geopolitical factors, the "imbalance" between Boeing and Airbus in the Chinese market is likely to continue for a long time.
The tilting of the Chinese market space to Airbus is an inevitable result of the current geopolitical and geo-economic development. European countries are currently suffering from triple shocks, namely the economic shock caused by the COVID-19 pandemic, the geopolitical shock caused by the war in Ukraine, and the shock of high inflation triggered by the energy crisis.
The large order of USD 37.257 billion carries positive significance for the economy of Airbus and related European countries. This huge order shows that the "Chinese market" is also an economic "soft power" to watch, which will help maintain and improve Europe-China relations for at least the next few years. From an objective point of view, the war in Ukraine has intensified the Western world's vigilance against China, and the recently concluded NATO summit even listed China as a "systemic challenge" for NATO's future. In the face of changes in the geopolitical situation, a Europe that is different from the United States will be of great implication to China.
While providing large orders to Airbus, China can advance two goals. One is to promote China's C919 aircraft to obtain European airworthiness certificates. In order for the C919 to enter the international market in the future, the acquisition of airworthiness certificates in the United States and Europe are two hard thresholds that must be passed. Reaching such a goal is indeed challenging, and both need to be broken through separately. The second is to promote the cooperation between Airbus and China in the research and development of large aircraft. In the field of civil aviation, China's biggest bargaining chip is its market space. Data from the Civil Aviation Administration of China (CAAC) shows that, as of the end of 2019 before the outbreak of the COVID-19 pandemic, the number of transport aircraft in China's civil aviation industry was 3,818 at the end of the period, with passenger aircraft accounting for 95.5% (3,645), in addition to 173 cargo aircraft. According to the China Aviation Industry Development Research Center's "China's Civil Aircraft Market Forecast Annual Report (2021-2040)", in the next two decades, the country will need to supplement 7,646 civil passenger aircraft and 650 civil cargo aircraft, of which narrow-body aircraft account for the vast majority.
The huge market size of China's civil aviation aircraft is a long-term bargaining chip for strengthening cooperation with Airbus and Boeing in the future. From the perspective of the geopolitical situation, Airbus may gain a larger share of the Chinese market cake in the future, and Boeing also has a lot of potential space. In the 22 years from 2000 to 2022, Boeing delivered a total of 1,413 (including cargo aircraft) 737 series aircraft to China. In the next 20 years, China's market space will be even more impressive.
Final analysis conclusion:
China's purchase of almost 300 jets from Airbus marks a market strategy choice under the current geopolitical backdrop. In the context of the continuous deterioration of U.S.-China relations, it is undoubtedly of special significance for the Chinese airline companies to place large orders with Airbus. It is apparent that China wishes to build and solidify its cooperative relationship with Europe through such means, and strive to obtain greater geopolitical and geo-economic space.
