Why did the three major airlines purchasing 292 Airbus reach the biggest order in history at present？
China Southern Airlines purchased 96 aircraft.
The basic price is about $12.248 billion.
China Eastern Airlines buys 100 aircraft.
The total basic price is about $12.796 billion.
Air China and its holding subsidiary Shenzhen Airlines purchased a total of 96 aircraft.
The total basic price is about $12.213 billion.
The aircraft ordered by the three major airlines will be delivered from 2023 to 2027.
On July 1st, China Southern Airlines, Air China and China Eastern Airlines, the three largest domestic airlines, announced that they had signed a purchase agreement with European aircraft manufacturing giant Airbus — — A total of 292 A320NEO series aircraft were purchased, and the total purchase amount will reach 37.257 billion US dollars (about 249.1 billion yuan). This transaction is the single order with the largest quantity and the highest order amount among the three major airlines in the history of aircraft purchase, and it is also the first large-scale passenger aircraft order announced by China civil aviation industry in recent three years.
Why did the three major airlines reach the biggest order in history at present? Why did this "group purchase" order select Airbus A320NEO? 249.1 billion yuan is not a small sum. Under the influence of the epidemic, where did this money come from? Does the large-scale purchase of aircraft in the downturn of the aviation industry signal the full recovery of China’s civil aviation industry?
Why buy it?
Optimization of fleet structure and long-term capacity supplement are the main reasons
At present, the aviation market has not fully recovered, so why did the three major airlines sign the largest order in history at this node?
Qi Qi, an expert of China Civil Aviation High-quality Development Research Center and an associate professor of guangzhou civil aviation Vocational and Technical College, said: "It can be said that it is a compensatory consumption. Because there are many uncertainties during the whole epidemic, it is difficult for airlines to make a large-scale purchase of aircraft. At present, we see that the whole signal of aviation recovery is relatively strong. At this moment, it is actually an important performance of market confidence for airlines to buy related models in a big way. "
The reporter noticed that in the announcements of the three airlines, the main reason for purchasing the aircraft this time was mentioned, that is, the aircraft transaction was in line with the company’s "14 th Five-Year Plan" development and market demand, and the company needed to plan and reserve the fleet capacity in advance, optimize the fleet structure and supplement the long-term capacity. Air China said that the introduction of new aircraft will be concentrated after 2024, and this transaction will increase the Group’s capacity by about 10.4%. China Eastern Airlines said that after the introduction of this aircraft, it will be mainly put into the domestic trunk network market to encrypt high-yield routes and develop potential markets. China Southern Airlines said that the purchase of 96 A320NEO series aircraft will increase the Group’s capacity by about 13.0%.
Why buy it now?
More bargaining power, the purchase price is more favorable
The consumption potential and confidence of the market are constantly increasing. However, at present, the civil aviation industry in China has not fully recovered to the pre-epidemic level, and the seat capacity that the industry as a whole can provide is still far higher than the current market demand. So is it necessary to order so many new planes now? In this regard, experts said that the replacement of old and new models can promote the metabolism of the industry. In the future, the aviation market will be huge, and China needs to continuously increase new capacity to keep the airline fleet younger.
Experts said that due to the impact of the epidemic, the speed of aircraft introduction of the three major airlines has greatly slowed down in the past two years. Take Air China China as an example. By the end of 2021, the fleet size was 746, a net increase of 52 compared with the end of 2019. The average annual import rate is between 1% and 3%, which is far from the previous rate of 6%-8%.
Qi Qi believes that many domestic models are relatively old. In the aviation field, the fuel economy of new aircraft will be much better than that of old models, which also urges airlines to accelerate the iteration of old models. In addition, with the market recovery and business development, the domestic aviation market also needs to continuously increase new capacity.
The transaction amount of this large passenger plane order is nearly 250 billion yuan. However, the three major airlines all said that Airbus will give a larger discount in the actual transaction, and the actual price of the aircraft will be lower than the above basic price. Therefore, experts also speculate that airlines have more bargaining power to buy new aircraft at this node at a more favorable purchase price, which is also one of the main factors for the three major airlines to concentrate on buying new aircraft.
Why A320NEO?
Domestic airlines have a strong demand for narrow-body aircraft.
Even if the moment is a good opportunity, why did the three major airlines choose Airbus’s narrow-body A320NEO? A320NEO series aircraft is the latest generation of narrow-body aircraft of Airbus, the best-selling New Engine Option of A320 series aircraft, and the fist product of Airbus in the single-aisle narrow-body aircraft market at present.
Single-channel narrow-body aircraft is the main passenger aircraft on domestic routes and short-haul international routes. By the end of 2021, there were 4,054 registered aircraft in the civil aviation industry, among which 3,178 were narrow-body aircraft, accounting for nearly 80% of the transport fleet.
Qiao Shanxun, secretary-general of the Expert Committee of Henan Aviation Industry Association and researcher of Henan Collaborative Innovation Center for Aviation Economic Development, told reporters that domestic airlines have a strong demand for narrow-body aircraft, and the three major airlines themselves have a large-scale narrow-body fleet. At present, the proportion of narrow-body aircraft is 70% to 90%, and they have their own needs for renewal of old aircraft.
Airbus A320 and Boeing 737 are the two most popular single-aisle passenger aircraft in the world, which is also one of the most competitive markets between Airbus and Boeing, an American veteran aircraft manufacturer. In 2021, Airbus delivered a total of 611 passenger planes, while Boeing delivered only 340 in the same year. Airbus has become the world’s largest aircraft manufacturer for three consecutive years. After the successive accidents of Boeing 737MAX, Airbus has taken the lead in the single-aisle passenger aircraft market.
Where does the money come from?
Business operation, commercial bank loans and other financing methods
Buying aircraft is a major capital expenditure for airlines, which will increase the scale of airline debt. At present, affected by the repeated epidemic and the high international crude oil price, the performance of the three major airlines fell further in the first quarter of 2022, with a total loss of over 20 billion yuan. In this case, where does the money for buying a plane come from? Will cash flow be affected? Will it further increase the scale of airline debt?
Experts said that as a high-value product, aircraft is not a spot transaction. At the same time, the manufacturing cycle is relatively long, so the order is usually signed 3-5 years in advance. The 292 aircraft ordered this time will also be introduced in years and batches. Taking Air China as an example, public information shows that the purchased aircraft is scheduled to be delivered in batches from 2023 to 2027; Shenzhen Airlines, the holding subsidiary, plans to purchase aircraft in batches from 2024 to 2026.
In the announcement, the three major airlines all said that the money for buying planes does not need to be paid in one lump sum. Because it is annual, the aircraft are delivered in batches every year, so it is customary to pay part of the advance payment in installments, and then pay off the balance on the delivery date of each aircraft. In the announcement, all three airlines said that they would provide funds for the purchase of aircraft through business operations, commercial bank loans or other financing methods. The transaction amount is paid by installment, which is not expected to have a significant impact on the company’s cash flow and business operations.
Expert opinion
The deep cooperation model between Airbus and China aviation industry is highly recognized.
As a supplier, Airbus confirmed the news of this order in official website for the first time. Scheler, chief commercial officer of Airbus and head of Airbus’s international business, said: "We commend the excellent work done by the entire Airbus China team and our customer team. They had a long and extensive discussion during the difficult COVID-19 epidemic." As of May this year, there were more than 2,070 Airbus aircraft operating in China.
Experts said that the massive purchase of Airbus aircraft by China’s three major airlines also released a positive signal, which once again confirmed that the deep cooperation model between Airbus and China aviation industry was highly recognized. In addition, Airbus has three production assembly lines in Tianjin, which also reflects the good coordinated development of aircraft manufacturers and domestic aviation industry. Comprehensive CCTV News, The Paper