Boeing announces big China order–but how big is it, really?

Sept. 24, 2015, (c) Leeham Co. Boeing yesterday announced a deal pegged at $38bn for 300 jets for China, timing the announcement with the State visit to Seattle of Chinese President Xi Jinping.

Orders and Commitments for Boeing Commercial Airplanes

Boeing and China Aviation Supplies Holding Company (CASC) have signed a General Terms Agreement related to the purchase of 300 airplanes. The package has a value of approximately $38 billion at list prices.

Aircraft orders and commitments include:

(240) airplanes for Chinese airlines, including (190) 737s and 50 widebody aircraft

(60) 737s for leasing companies ICBC and CDB Leasing

“Boeing airplanes have played an important role in supporting the development of China’s aviation transportation for the past 40 years,” said Li Hai, president of China Aviation Supplies Holding Company. “These additional airplanes will further help connect the people in China and around the world.”

“China is a critical international market for commercial airplanes,” said Conner. “We thank our Chinese customers for selecting fuel-efficient Boeing airplanes to meet their fleet growth and expansion.”

But the information above is remarkably vague on detail. Questions immediately arose on Wall Street over just how big this deal truly is.

The transaction doesn’t even identify what wide-body orders and commitments are included in the 50. Nor is there any information about how many of the airplanes, whether wide- or narrow-body are from announced but Unidentified orders. There is no information about the number of firm orders vs options, or even MOUs.

There’s no model or sub-type break down, and no information about the delivery years. This makes it impossible to judge whether Boeing’s production gap for the 777 Classic and 747-8 get any support out of this deal.

“This agreement includes approvals and new commitments. Included in the agreement are a number of new incremental commitments, as well as approvals of previous commitments,” spokesman Doug Alder Jr. wrote LNC in an email. “We aren’t providing specific details at this time.”

Wall Street was not impressed with this supposed record-breaking order. Boeing stock was off $2.38 when the Dow Jones was flat.

“The Chinese order was a disappointment, and that weighed on the stock,” one analyst write LNC. “The lack of details indicates this was not the order that was expected. And Boeing set those expectations.”

Update, 0730AM PDT: Other media are catching on there is less to this than meets the eye. Aviation Week is particularly insightful.

 

21 Comments on “Boeing announces big China order–but how big is it, really?

  1. Surprising. I thought that was going to be a big sensation.
    Besides the lack of details in breakdown, composition, etc. why is this being seen as such a non-event?

    Indeed the quote from the Wall Street analyst made it almost sound like bad news, which I find strange.

    • I guess because it seems that a not insignificant number of these “300 orders” have already been booked by Boeing as ‘unidentified’, so a lot less new business than the headlines suggest.

      • I guess that will all come out when these unidentified customers finally become identified.

        Seems sort of silly, especially as the markets don’t seem to be falling for it.

  2. “Wall Street was not impressed with this supposed record-breaking order. Boeing stock was off $2.38 when the Dow Jones was flat.”

    The news also had an impact on Bombardier’s stock which lost almost 9% yesterday. It seems to be a trend right now: each time a new order is announced for Airbus or Boeing, BBD’s stock goes down. There is a good side to this though, for it means people are now associating the C Series with the A320 and 737.

    • Hi Normand

      I know how much the C Series means to you but that logic is perverse. And yes like most on this forum I would dearly like this programme to be a success.

      • I am not sure which logic you are referring to. If you meant the relationship of A&B narrowbody orders with the BBD stock there is an obvious correlation that many people had noticed before I did. On the other hand if you are referring to the association I make of the C Series with the 737 and A320 in people’s minds it deserves an explanation. When the C Series was introduced more than seven years ago it took a considerable amount of time for a majority of observers to understand the threat it represented for Airbus and Boeing in the narrowbody sector. And there is a reason for this. Most people saw the C Series as belonging to a niche market, a sort of twilight zone between the big Embraers and the small variants of the A320 and 737 families. But that perception has changed over time, and today a majority of observers understand how serious the C Series threat is for A&B’s dominance in the single aisle market. Especially when one considers the upcoming CS500 variant. At the beginning it seemed only John Leahy was taking the C Series seriously. Today just about everyone does. That’s why the stock goes down each time Airbus or Boeing clinches a narrowbody order; i.e., people now understand that an order for the 737 or A320 is one less for the C Series. The irony here is that this not true most of the time. For A&B’s customers are more interested in the larger variants of the A320 and 737 families with which the CS100 and CS300 are not competing directly. That honour belongs to the CS500. Another irony is that customers lost interest in the smaller A&B variants because of the availability of the CS100/CS300. And they may also temper their interest for the larger A&B variants when the CS500 will hit the market.

        • CSeries sales are pathetic. They’ve sold not a single one so far this year.

          As for the “threat” of the CS500, well if and when it is ever launched, then it may be a threat. However, Bombardier has more than enough on their plate trying to get the current models to EIS. Lack of orders is a real worry.

          Claims that the CS100/CS300 have curtailed sales of the A319/737-700 are a real smokescreen. Airbus and Boeing sales have simply moved up a model. Look at the huge numbers of A321s Airbus is now selling.

          Even with the mythical CS500, the whole CSeries family is on the slightly too small size to cause Airbus and Boeing serious concerns. The sales numbers do not lie.

          • “Even with the mythical CS500, the whole CSeries family is on the slightly too small size to cause Airbus and Boeing serious concerns. The sales numbers do not lie.”

            The CS500 is likely to have the same capacity as the A320, but 12 seats less that the 737-800. That is if we add four rows to the CS300, like the latter has over the CS100.

            “The sales numbers do not lie.”

            They certainly don’t. And what they tell us is how powerful Boeing and Airbus are. Bombardier is no match for these two giants. But the C Series itself is quite a match for the 737 and A320. The CS500 is not a myth, nor is it a realty just yet. We may indeed have to wait a little longer before it takes to the air, but when it does it will be much harder to stop than the CS100/300. A&B can easily crush Bombardier, but there is little they can do about the C Series, except going back to their drawing boards.

          • LOL. You have it exactly backwards. What airlines wants to buy an airliner that isn’t in production yet, where there is no guaranteed delivery date since it isn’t in production yet (both entry into service date and how smooth the production ramp-up goes), doesn’t have dispatch rates or in-service costs/revenues, and no longer sells for launch customer pricing?

            Maybe you put a down payment in 2006 for that promised Alfa Romeo sedan to return the the American market in 2008; but the rest of us want to see the product first and see if the promised performance is there.

            It would be a sign of serious weakness for BBD to be selling CS series airplanes right now because they would be sacrificing future full-price sales for discounted fire sales to capitalize their business.

          • Then BBD must be very happy they’ve sold no CSeries this year. Very happy.

          • @ Garrett

            “It would be a sign of serious weakness for BBD to be selling CS series airplanes right now because they would be sacrificing future full-price sales for discounted fire sales to capitalize their business.”

            Spot on!

          • It will be a threat once it is in the market. It’s revised performance can not be ignored. It is simply a more advanced, lighter, agile machine. Yes, it has been slow out of the gate. Yes, Bombardier isn’t as slick with the sales and marketing as Airbus or Boeing but it, in my estimation, this will soon eat into the unspoken market that is out there.

  3. Reading Adler’s statement he talks about “approvals” implying most of this is not a new order, and “incremental commitments” which is not the way you announce large orders.
    A lot of unidentified orders are on Boeing’s books recently, how many will be left after this?

  4. Whenever Boeing or Airbus are landing deals in the 100+ range, what actually happens is they shave yet another percentile off their learning curve, whilst BBD are at a standstill on THEIR learning curve, producing C Series aircraft at a unit cost well above the unit cost of respectively a (bigger) MAX or NEO. The implication is that the two lead OEMs are factually barning the means (sales profits) with which they can attack BBD’s bottomline any time.

  5. Boeing’s current order tally lists as unidentified, 91 737 buyers, 17 777s and 38 787s f0r a total of 144 unidentified aircraft, So if all the unidentified buyers are indeed Chinese this would mean this order would be 156 new orders and commitments.
    As for order composition ICBC Financial Leasing said it will buy 30 Boeing 737-800s.
    So yes this was a very bad day for Boeing, one wonders how long they absorb hits like this.

    • Ah, that’s making the assumption that the previously booked orders were all placed in 2015. That’s a big assumption in this case.

      Boeing currently lists 726 orders placed by ‘unidentified customers’.

  6. Lots of unknowns for sure! The only thing that we know for sure is Boeing is building a factory in China and shipping 100’s if not 1,000’s of good paying American jobs to China along with it. No doubt Obama toasted this “great order” last night when he hosted the Chinese Premier at a state dinner. President Trump can’t get into the White House soon enough!

  7. OK, the order isn’t a big deal but the new facility is. It is the right move and this will only help alleviate the pressure on Renton in the coming years while attracting more Chinese customers because it was partly assembled in China.

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