Boeing 7E7 Deal With China Is Expected

Boeing Co. is expected to announce today that it has reached a “preliminary agreement” with the Chinese government that would allow six Chinese airlines to order a total of 60 of Boeing’s forthcoming 7E7 passenger jets.

The pact, which could lead to orders valued at about $7 billion, would end months of negotiations and bolster prospects for the jetliner, a mid-size airplane that Boeing will begin delivering in 2008. Boeing began developing the 250-seat airplane last year in hopes of regaining market share it has been losing to archrival Airbus.

Boeing has 56 firm orders for the airplane, which is being marketed as a next-generation, super-efficient jetliner that would save airlines 20% in operating costs over the current generation of mid-size jets. Boeing is the largest private employer in Southern California with 36,000 employees, but most of the work on the 7E7 will be done elsewhere.

Chinese airlines have been eager to place orders for the 7E7 so they could get the planes in time for the 2008 Summer Olympics in Beijing, analysts said. But Chinese government officials have held back any deals to protest U.S. arms sales to Taiwan.

“Obviously, [the 7E7 orders are] a plus,” said Cai von Rumohr, an analyst at SG Cowen. “I’m a bull on the 7E7. Boeing has a better product” than Airbus’ rival A350 and “will get more than half the market.”

The pending announcement bolstered Boeing shares, which rose $1.11 to $50.97 on the New York Stock Exchange.

With the 7E7, Boeing is betting that travelers will prefer point-to-point flights compared with going through a major airport and taking a connecting flight. Airbus meanwhile is building a double-deck, 555-seat super jumbo jet, believing that travelers would prefer the comfort of a larger jet and that major airports will not be able to accommodate more jets.

The six Chinese carriers interested in ordering the 7E7 are China Southern Airlines Co., China Eastern Airlines Corp., Air China Ltd., Shanghai Airlines Co., Hainan Airlines Co. and Xiamen Airlines.

Boeing believes that within 20 years China will become the world’s second-largest commercial aviation market, behind the U.S. The company said China would need 2,300 planes over the next two decades as increasingly well-off Chinese took to the air.

Boeing has listed the cost of each 7E7 at about $120 million.

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Reuters was used in compiling this report.