China Eastern Buys $6.4 Billion Airbus A320 Neo Aircraft

China Eastern Airlines Corp. (670), the nation’s third-largest airline, ordered $6.4 billion of single-aisle planes from Airbus Group NV (AIR) to meet demand in a country set to become the world’s biggest aircraft market.

The 70 planes will be delivered between 2018 and 2020 and the final price is “significantly less than” the manufacturer’s list price, China Eastern said in a statement to the Shanghai stock exchange yesterday. The airline is buying A320neos, the most fuel-efficient version of Airbus’s single-aisle planes.

The purchase, the biggest announcement from a Chinese airline this year, will enable Shanghai-based China Eastern to meet the growing demand for short and medium-haul travels, the airline said. China’s government yesterday eased regulations for setting up budget airlines to encourage more companies to start operations and make air travel affordable to more people.

Airbus has forecast that China will supplant the U.S. as the world’s largest market for aircraft by 2032. In January, Boeing Co. said it delivered a record number of jets to China last year and expects to hand over a similar number of aircraft in 2014 as growth in the world’s second-biggest economy spurs demand for air travel.

Buying the new planes will increase the airline’s capacity by about 12.65 percent, according to the statement. The deal has been approved by the carrier’s board and still needs the nod from relevant authorities in the country, it said.

A320 Neo

Toulouse, France-based Airbus is lifting the production of its best-selling A320 aircraft to 46 a month in 2016 from 42 now, the planemaker said earlier this week. Airbus is preparing production of the updated A320, called the Neo, with two choices of more fuel-efficient engines. The first A320neos are set to enter service late in 2015.

Airbus’s orders last year were dominated by the the A320, with 1,253 contracts, including 876 of the new A320neo model.

China Eastern also agreed to sell seven A300-600s to Airbus and will remove them from its fleet this year, the company said in the statement.

The government will also study tax breaks for budget airlines to help lower their costs, the Civil Aviation Administration of China said in a statement on its website.

Source: Bloomberg News Kyunghee Park