Caixin
Sep 02, 2019 07:33 PM
BUSINESS & TECH

Chinese Regional Jet Gets Boost from Big Three State Airlines

An ARJ21-700 jet developed by Commercial Aircraft Corp. of China makes an appearance on Nov. 7 at an airshow in Zhuhai, South China’s Guangdong province. Photo: IC Photo
An ARJ21-700 jet developed by Commercial Aircraft Corp. of China makes an appearance on Nov. 7 at an airshow in Zhuhai, South China’s Guangdong province. Photo: IC Photo

China’s three largest state-owned airlines simultaneously announced orders for 105 regional jets from leading plane builder COMAC, providing a major boost for a model that has only delivered 14 jets since it was first conceived 17 years ago.

Air China Ltd., China Eastern Airlines Corp. Ltd. and China Southern Airlines Co. Ltd. each said separately that they would each buy 35 of the ARJ21-700 jets, according to individual announcements issued late on Friday. Each of those orders would be worth $1.33 billion based on the plane’s list price, though big discounts are typically given. In total the deals would provide Commercial Aircraft Corp. of China, or COMAC, with orders for 105 new ARJ21-700 jets with a combined list price worth $4 billion.

Like many major sectors in China, aviation was traditionally monopolized by big state-owned enterprises, and such firms still dominate the industry. With the central government as their controlling shareholder, the group often acts in unison when making major purchases to receive bigger discounts associated with bulk buying.

At the same time, China is aggressively trying to develop its plane-building industry to take a slice of the lucrative market currently controlled by the duopoly of Boeing Co. and Airbus SE for large planes, and a handful of other global players for smaller models like the ARJ21-700. Accordingly, Beijing often uses the state-owned Chinese carriers as core early supporters for planes like the ARJ21-700, which have yet to find a major global audience.

The Chinese carriers are being motivated at least partly by big discounts for their large ARJ21-700 orders, a source close to the deals told Caixin. The source added the planes also fill a need by being able to fly routes between major cities and smaller, more distant ones that are often less profitable.

“The ARJ21’s low cost is very suitable for these regional routes to relatively remote places, and in this particular series of deals, COMAC is giving considerable discounts,” the source said.

The ARJ21-700 program dates back to 2002 when it first received government approval. It made its first flight in 2008 and got its type certificate — which signals airworthiness from the accrediting body — from China’s aviation authority at the end of 2014.

The model, which seats 78 to 90 and can fly routes from 2,225 kilometers to 3,700 kilometers long, has attracted orders for 596 planes from 22 customers, according to data released by COMAC late on Friday. COMAC added it has already delivered 14 of the planes to Chengdu Airlines and Genghis Khan Airlines, and those planes are now flying 28 routes between 31 cities.

COMAC is also the developer behind the higher-profile and larger C919, which is designed to go head-to-head with Boeing and Airbus. The C919 has already made several test flights, and in February COMAC said it expected to deliver the first commercial models to China Eastern in 2021.

Contact reporter Yang Ge (geyang@caixin.com; twitter: @youngchinabiz)

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