Airbus to supply jets to Chinese carrier East Star

European aircraft maker Airbus has signed a 12 billion-yuan (US$1.48 billion) deal to supply 20 A320 jets to private Chinese carrier East Star Airlines (東星航空), a small but expanding segment of China's booming aviation market, the two companies said yesterday.

The new airline intends to buy 10 A320s from Airbus on credit offered by the aircraft manufacturer and lease the other 10 from General Electric's financing arm, GE Commercial Aviation Service, a joint statement said.

Following Boeing's US$4 billion signing a week ago to supply 70 737 aircraft to eight Chinese airlines, Airbus will deliver the first three planes in May next year when East Star Airlines is expected to launch its first flights.

"There is demand from the market and private airlines are a new market in the Chinese aviation market," Airbus spokesman Kevin Gu told reporters.

East Star Airlines, founded by three firms including the privately owned tourism and property investment company China East Star Group Co (東星集團), will offer flight services connecting more than 10 domestic cities.

The airline, based in Wuhan, the capital of central Hubei province, won approval in June from the Civil Aviation Administration of China to begin operations. The carrier has registered capital of 80 million yuan.

"The A320 family aircraft is no doubt the best choice for our new airline," East Star Group president Lan Shili (蘭世立) said.

"It's unmatched low operating costs with the highest level of passenger comfort will help us take off smoothly and successfully."

As China's aviation market has boomed a number of private airlines such as United Eagle Airlines (鷹聯航空) and Spring Airlines (春秋航空) have taken to the skies in hopes of competing against China's big three -- Air China (中國航空), China Eastern (東方航空) and China Southern (南方航空).

There are currently four registered Chinese private airlines attempting to break China's state-run monopoly of national and regional carriers.

Groups like Shanghai-based Spring hope that the budget business model which has flourished in Europe and the US will take off in China though tight regulation could clip its wings.

For one, Okay Airways (奧凱航空), Chinas first private airline, announced last month that it was being forced to revamp its low-cost business model because government restrictions have made it impossible for it to survive. After only seven months in operation the company conceded that as the first carrier to challenge state-owned carriers it would have to adopt a more conventional business model.

For its part, Airbus, which is 80 percent owned by the aerospace conglomerate EADS and 20 percent by British defense contractor BAE Systems, is locked in a dogfight with US rival Boeing to win greater market share in the world's third largest and fastest growing airline market. It holds 28 percent of the Chinese market but aims to ramp that figure up to 50 percent over the next eight years.

The stakes for both Airbus and Boeing are high in China, where Boeing predicts the industry will need 2,600 new planes, quadrupling the present fleet, over the next 20 years.