Boeing this week expressed confidence in the strength of Chinese air transport sector despite China’s recent move to devalue its currency and the stock market volatility that this sparked. In its latest market outlook for the country, published on August 25, the U.S. airframer forecast continued growth in China’s demand for airliners. The forecast estimated demand for 6,330 new airplanes over the next 20 years, with a combined value of $950 billion. This total is 300 more than reported in Boeing's 2014 China forecast, and if this number of aircraft delivered by 2034, it would triple the size of Chinese airliner fleet.
Earlier this month, China’s central bank rattled international markets by unexpectedly cutting the value of its currency, the yuan. The yuan lost about 3 percent of its value against the U.S. dollar between August 11 and 13, sending shares of the three major state-owned Chinese airlines plummeting on concerns that a weaker yuan would leave the airlines burdened with diminished earnings and billions of U.S. dollars in aircraft debt. Equity market volatility this week hit the value of publicly listed airline stocks worldwide, but by close of trading on August 26 share prices for leading Western carriers had somewhat recovered, while those of China Eastern Airlines, Air China and China Southern Airlines continued to drop. Industry analysts have expressed concern that falling tourism demand among Chinese travelers and weakened economic activity in China's leading overseas trading partners could hit airlines.
“Despite the current volatility in China's financial market, we see strong growth in the country’s aviation sector over the long term,” said Randy Tinseth, Boeing Commercial Airplanes vice president of marketing. “Enabled by China’s growing middle-class population, new visa policies and the underlying strength of its economic growth, this expansion is expected to continue, and in fact accelerate,” he added.
Tinseth stressed that Chinese airlines have more than doubled their long-haul international capacity over the past three years, following the delivery of 747-8s to Air China and 777-300ERs and 787s to several other carriers.
Before the extent of China's economic slowdown became apparent from the sudden currency devaluation, the country's airlines had given the impression that they were on track for a record year. Leading the pack was China Eastern. The Shanghai-based carrier reported first-half net profit of approximately $556.4 million on August 14, representing an increase of nearly 24 percent compared with the same period last year. In a separate statement, the airline announced plans to acquire 15 Airbus A330s for about $3.6 billion to replace retiring widebody aircraft and meet increasing travel demand. Airbus is scheduled to deliver seven A330s in 2017 and a further eight in 2018.
Meanwhile, Guangzhou-based China Southern is expected to turn in a strong first-half net profit in the range of $530 million to $561 million. The company, which is scheduled to release its six-month financial statement on August 28, took delivery of its 42nd aircraft, an Airbus A320, earlier this month.
Air China predicts first-half net profit to soar by more than 700 percent, to be between between $594 million and $625 million. The carrier hopes to raise $2 billion by circulating 994 million non-public shares to purchase 15 Boeing 787s. The aircraft will be delivered over the next three years and will be used on international long-haul routes to the U.S. and Europe.
These financial projections would appear to make a mockery of the double-digit collapses in the Chinese carriers' share prices. This disconnect also raises fresh questions about the apparent lack of transparency of China's economic situation on the part of the airlines' leading shareholder, the Chinese government.