Boeing's $10 billion deal shows the rising clout of Asian airlines

Boeing's $10 billion deal shows the rising clout of Asian airlines

 A file picture of Boeing 777Air China, country’s flag carrier, signed an agreement to buy five Boeing 747-8 aircraft, each capable of carrying more than 460 passengers, as part of its drive to expand its international network.

In a separate agreement but still being completed, Hong Kong Airlines, part of HNA Group, said it would purchase 38 Boeing aircraft, including 30 of the plane maker’s new Dreamliners and 6 freighters. Together, the Boeing aircraft are worth about $10 billion at list prices, though purchases are often subject to undisclosed discounts.

HNA Group, which is controlled by the government of Hainan Province in China, also announced orders for several business jets from Dassault Aviation and Gulfstream Aerospace.

The announcements, made at an aerospace show in Hong Kong, demonstrated just how rapidly many Asian carriers are expanding and how important the region has become for manufacturers like Boeing and Airbus. The market for air travel and freight services has grown dramatically in Asia thanks to the region’s rapid economic growth.

Asia-Pacific carriers are forecast to generate collective profits of about $3.7 billion this year, the International Air Transport Association estimated last week. That makes the region the world’s biggest in terms of earnings. North American carriers’ profits are forecast to total $3.2 billion, while European airlines are likely to make a collective $400 million this year, the travel association said.

For aircraft manufacturers, too, the region has become increasingly important. Boeing said Tuesday that it expected the region’s air traffic to grow at an annual rate of 6.8 per cent over the next 20 years, well above the world average of 5.3 per cent.

Air travel growth in China, the world’s second-largest economy after that of the United States, will be even more rapid, with a pace of 7.6 per cent, the manufacturer estimated.

“Asia-Pacific will account for one-third of new airplane deliveries worldwide over the period,” Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes, said Tuesday. “This demand is driven by the fact that Asia-Pacific will account for 44 per cent of travel in 20 years’ time, up from around 34 per cent today.”

The recent increase in fuel prices presents “a challenge” to the airline industry, Tinseth acknowledged. Crude prices have risen sharply in recent weeks because of the turmoil in North Africa and the Middle East. This has weighed heavily on the share prices of airlines, for which fuel prices represent a large part of operating costs.

Despite that, Tinseth said, “we are at the beginning of an aviation upcycle.”
The comments echoed statements from Airbus on Monday. Airlines in the Asia-Pacific region are expected to take delivery of about 8,560 new aircraft over the next 20 years, Airbus estimated. “Valued at $1.2 trillion, the requirement represents 33 percent of new aircraft deliveries worldwide over the forecast period, with the region overtaking North America and Europe as the largest air transport market,” the company said.