The three major domestic airlines announced the purchase of Airbus aircraft on the same day, July 1, and purchased 292 aircraft for a total amount of more than 37 billion US dollars. This is definitely the most talked about news event in recent times. Since the outbreak, the aviation industry has been hit hard as various places have long advocated not traveling unless necessary. Nowadays, the three major airlines are purchasing large amounts of aircraft, which has a strong symbolic meaning.
China Eastern Airlines , Air China and China Southern Airlines purchased A320NEO series aircraft from Airbus for nearly 250 billion yuan. Purchasing aircraft at this time shows that airlines are confident that the epidemic will be alleviated, and the aviation industry is about to usher in a major rebound in performance.
On the other hand, 292 aircraft is a very large contract, and there are also considerations in choosing Airbus instead of Boeing . Although the global civil aviation aircraft are mainly monopolized by these two companies, where to purchase the aircraft is not just a commercial consideration. Buying Airbus from Europe instead of Boeing aircraft from the United States is a goodwill show to the EU countries and is conducive to the strengthening of China-EU economic and trade relations.
Why do domestic airlines spend so much money purchasing aircraft?
There are several reasons.
First of all, now that the domestic epidemic situation is gradually easing, the aviation market has also begun to recover. The skyrocketing search volume for air tickets after the asterisk was removed from the itinerary codes fully illustrates the people's enthusiasm for travel.
Secondly, due to the epidemic in the past three years, domestic airlines have rarely purchased aircraft. Many leased aircraft are about to expire, and airlines also need to replenish passenger aircraft.
Third, through large-scale joint procurement, prices can be lowered when negotiating with Airbus. Such a large amount of passenger aircraft procurement also has a huge media communication effect, allowing EU countries to feel the huge potential of China-EU trade, and also putting pressure on Boeing and the US government.
This time, the three major airlines purchased 292 Airbus aircraft at one time. How big a deal is it? You must know that and Airbus only received a total of 253 civil aircraft orders in the first quarter of this year and delivered 142 civil aircraft, of which only 109 were A320 series aircraft.
Why should we purchase Airbus A320NEO model?
Among the purchases of up to 192 passenger aircraft, China Eastern Airlines spent US$12.796 billion to purchase 100 A320NEO aircraft. Air China and China Southern Airlines each invested approximately US$12.2 billion to purchase 96 A320NEO series aircraft from Airbus. The aircraft are scheduled to be delivered over the next five years.
Why are the models purchased this time all Airbus A320NEO series aircraft?
The Boeing 737MAX series and the Airbus A320NEO series are the two mainstream narrow-body aircraft on the market. Due to the fact that Boeing's 737MAX series aircraft have experienced many accidents in recent years , Boeing 737MAX series aircraft orders have lagged significantly behind the Airbus A320NEO series.
Airbus A320NEO series aircraft are improved models of the A320 series aircraft, equipped with new high-efficiency engines and sharklets. Due to cabin optimization and engine improvements, compared to the A320 series aircraft, the A320NEO can reduce fuel consumption and carbon dioxide emissions by 20%, airframe maintenance costs by 5%, and 14% single-seat cash operating costs.
In 2021, Airbus A320NEO series aircraft received 661 new orders. This time, China’s three major aviation companies placed 292 orders, equivalent to 44% of Airbus’s total orders for this model last year. As of the end of March this year, Airbus has delivered more than 2,000 A320NEO series aircraft to customers. A320NEO already accounts for 60% of the market share of this class of passenger aircraft. The number of seats in the A320NEO series aircraft ranges from 120 to 220 (traditional two-class class), and the range ranges from 6,400 to 8,700 kilometers depending on the aircraft model.
Boeing is not happy
Boeing is not happy about the purchase of 292 passenger planes from Airbus by three Chinese airlines and expressed "disappointment". Boeing said, "Geopolitical differences continue to restrict U.S. aircraft exports, which is disappointing," but Boeing also said it will continue to urge the Chinese and U.S. governments to engage in productive dialogue.
Due to the multiple accidents of the Boeing 737MAX series around the world in the past few years, the Boeing 737MAX has been grounded in many countries. Boeing's status as the world's largest aircraft manufacturer has given way to Airbus.Boeing has delivered far fewer aircraft than Airbus over the past three years. In 2021, Airbus delivered a total of 611 passenger aircraft, while Boeing only delivered 340 aircraft.
This gap can be clearly seen from the financial reports of the two companies.
Boeing's operating income in 2020 was US$58.158 billion, with a net loss of US$11.873 billion. ’s revenue in 2021 was US$62.3 billion, with a net loss of US$4.290 billion.
Airbus’ revenue in 2020 was approximately 49.9 billion euros, with a net loss of 1.13 billion euros. Revenue in 2021 is 52.149 billion euros and net profit is 4.213 billion euros. The exchange relationship between the euro and the US dollar is approximately 1:1.5.
In 2019, Airbus delivered a total of 863 passenger aircraft, "defeating" the American Boeing Company for the first time since 2011, becoming the world's largest aircraft manufacturer. In 2020, affected by the COVID-19 epidemic, Airbus delivered 566 commercial aircraft. In 2021, Airbus delivered 611 civilian aircraft. Airbus predicts that Airbus will deliver up to 720 civil aircraft in 2022.
It is worth noting that due to the impact of the new crown epidemic in 2021, the performance of the civil aviation industry is sluggish. According to the "Statistical Bulletin on Civil Aviation Industry Development in 2021" released by the Civil Aviation Administration of China, the entire industry suffered a loss of 84.25 billion yuan in 2021; in the first quarter of 2022, the three major airlines lost 24.5 billion yuan. As the COVID-19 epidemic situation improves, China's civil aviation has entered a comprehensive recovery path.
Affected by the positive effects of China's three major airlines purchasing passenger aircraft, Airbus's stock price rose nearly 3% to US$24.99. Its current market value is US$78.7 billion, which is still behind Boeing in terms of market value. Although Boeing's stock price has fallen by nearly half in the past year, it still has a market value of $82.7 billion.
Affected by the epidemic, the aviation industry still has not recovered. Passenger traffic of Air China and China Southern Airlines in May fell by about 70% year-on-year, and that of China Eastern Airlines fell by 84%. Statistics from the first half of June show that the passenger flight capacity of China's civil aviation airports has recovered by 51.2% compared to before the epidemic in 2019, while international flights have recovered by only 3.1%.
However, there are still enough reasons to be optimistic about China’s civil aviation after the epidemic. It is expected that China's civil aviation industry will need 8,700 new aircraft worth US$1.47 trillion in the next 20 years to meet the growing demand for air travel, including approximately 6,500 single-aisle aircraft and 1,850 wide-body aircraft.
Although the purchase of 292 aircraft by the three major airlines is a big deal, it is nothing to China, a huge economy. What Boeing needs to worry about is whether it can still get major orders from China's civil aviation industry in the future.
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Shanglin Academy: Yang Fei, Ph.D. in Economics, university teacher, In-depth observation of industrial economic and financial events.
