In July the Farnborough Airshow will start, which usually is a stage for jet makers, aircraft and lessors to announce new orders and launch new products. This year, AeroAnalysis will continue covering the air show news just like in previous years and we will look at some potential orders or ‘order news’ that we are not expecting. Prior to the air show the first order rumors start appearing. One of the rumors, which we are having a closer look at in this report, is China Eastern Airlines calling jet makers to bid for 150 aircraft. Especially with mounting trade tension this is a very interesting bid to follow.

Value

Under the assumption that all orders will be for the base model, the 150 jets would be valued $16.6B-$17.6B at list prices depending on whether you look at the prices for Boeing (BA) aircraft or Airbus (OTCPK:EADSF/OTCPK:EADSY) aircraft with the list prices for aircraft from the American jet maker being slightly higher. After discounts it would boil down to roughly $7.5B. If we add some bigger models to the mix, we would get to a catalog prices of $17.5B-$18.2 or roughly $8B after discounts. Any price differential between Boeing and Airbus could be zeroed due to bulk discounts and the importance of the order.

Airbus’s side

If we consider the installed base of the previous generation single aisle aircraft, which are the Boeing 737NG and the Airbus A320ceo families, Airbus clearly has the upper hand; China Eastern Airlines has 35 A319, 182 Airbus A320s and 77 Airbus A321s in service for a total of 294 aircraft. Boeing has 37 Boeing 737-700s and 93 Boeing 737 for a total of 130 aircraft in the fleet. Also when looking at the next generation orders of which China Eastern Airlines ordered 70 from Airbus and 60 from Boeing, Airbus has the upper hand. Given that some of the orders might have to replace the active A320 jets, all ingredients seem to be there for an Airbus win. Add to that the trade war between the US and China and it seems highly unlikely that Boeing could even win this order.

There, however, is another element to this story and that is that things haven’t been smooth between China and the EU either as French and German ambassadors commented on the Nanking Massacre, which is very sensitive in China. It even lies so sensitive that China is currently unwilling to finalize two pending commitments.

Boeing’s side

So it all seemed to be so easy; The US is in a trade war with China and China could hit the US hard by ordering aircraft from Airbus instead of Boeing, which means it could directly hurt the sales prospect of a company that has been responsible for much of rise of the Dow Jones since late 2016. Now that we highlighted that things with the European Union aren’t smooth either, probably still a bit smoother than with the US, there seem to be chances for Boeing. It won’t be easy, but we think that China Eastern Airlines is one of the airlines that would be best served by having the Boeing-Airbus duopoly reflected in the fleet. Looking at the previous generation installed base, we see that there is a gap of 164 units. Placing the order with Boeing could result in restoring the balance between Boeing and Airbus in the fleet. So Boeing could actually rise from an underdog position and then it would be interesting to see if its Boeing 737 MAX 10 has any appeal.

Conclusion

At first, it seems that given the current turmoil between the US and China that the order is a certain win for Airbus. However, things have not been smooth between the EU and China either and the timing of the Request For Proposal likely also is a clear warning sign from China to Europe as well as the US. The China Eastern Airlines group is a state-owned entity, so we cannot rule out that politics will be a decisive factor in the order decision. If restoring the duopoly in the China Eastern Airlines fleet is the target it would mean that Boeing has an edge, but if the current installed base is more representative of order chances then it would roll back to Airbus. Whoever wins the bid for 150 aircraft, in the future there will be demand from China Eastern Airlines for more aircraft as there are over 400 single aisle aircraft active for the airline, while there are 130 next generation single aisle jets ordered. Adding 150 jets means that there still are more aircraft needed to support growth and replacement in the future. Boeing and Airbus both will have to put significant effort to win this one, that’s for sure.