Local carrier Shenzhen Airlines, previously a loyal client of Boeing, has placed an order worth US$1 billion for 20 aircraft from Airbus after negotiations with Boeing fell through over pricing, the Shanghai-based Oriental Morning Post quoted an insider as saying.

It was reported that the aircraft are part of a deal signed on December 6 between China Aviation Supplies Import & Export Group Corporation and Airbus for a total of 23 A320-series planes.

A Shenzhen Airlines spokesperson confirmed the news. "But it's not us who authorized the newspaper to publish the news. We hadn’t agreed a timetable for an official announcement," he told China Daily.

The newspaper said Shenzhen Airlines had intended to keep buying aircraft from Boeing because a single model of plane helps the small carrier save operational, maintenance and training costs.

However, Boeing would not compromise on price as it wrongly assumed the airline would buy from them regardless. But Shenzhen Airlines decided to terminate negotiations with them and turn to Boeing's rival, the spokesperson said.

The local carrier, with total assets of just 6 billion yuan (US$727.2 million), compared to Air China's 51.5 billion yuan (US$6.2 billion), claims to have turned a profit for eight consecutive years amid increasingly steep competition in the aviation industry.

Set up in 1992 by five companies led by Guangdong Holdings Group, a Guangzhou-based conglomerate, Shenzhen Airlines now has a fleet of 26 Boeing 737-series aircraft operating from its hub in Shenzhen and sub-bases in the southern cities of Guangzhou and Nanning, and Wuxi in the east.

According to the report, the newly ordered aircraft may be assigned to the Guangzhou sub-base, now operating just two planes, since the company has decided to develop this market.

Both Airbus and Boeing said they have not been informed of the issue.

Airbus’ Beijing spokesperson told China Daily that it has maintained a good relationship with most of China's carriers and will definitely not neglect Shenzhen Airlines. Airbus is optimistic about its China prospects and plans to increase its market share from 32 to 50 percent, compared with a 7 percent stake 10 years ago.

Last year, Airbus, who overtook Boeing to become the world's largest aircraft manufacturer in 2003, received record orders of 81 aircraft from its Chinese clients. Boeing got just 15.

But Boeing remains a strong player in the local market with a 63 percent share at the end of 2004.

(China Daily January 24, 2005)