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Thu, Nov 13, 2003 - Page 12 News List

Boeing clinches US$2.4bn sale

TAKING OFF Boeing and General Electric signed agreements with China to provide 30 737 aircraft as well as related avionics equipment, engines, and technical support

BLOOMBERG

Boeing Co and General Electric Co were to sign agreements yesterday in Washington to sell as much as US$2.4 billion of aircraft and engines to China, helping narrow the US trade gap with Asia's second-biggest economy.

The purchase is among the 2,400 new aircraft estimated at US$197 billion that Chinese airlines are expected to buy in the next 20 years as they expand. It follows months of criticism by US lawmakers of China's widening trade gap, which is expected to increase by a quarter this year to US$130 billion.

"It is a gesture to show people that both sides are trying to deal with the trade imbalance," said Joseph Lau, who manages the equivalent of US$13 million at Tai Fook Asset Management Ltd in Hong Kong. "This is politically and economically correct for them. Many US jobs have shifted to China and the US needs to do something about it."

Air China, Shandong Airlines Co, Xiamen Airlines Co, Hainan Airlines Co and Shenzhen Airlines Co told Bloomberg in separate interviews yesterday and last week that they will together buy 30 single-aisle 737 planes from Boeing.

Chicago-based Boeing, the world's largest planemaker, accounts for about 60 percent of aircraft sales in China. It's been counting on Chinese carriers as it competes with Toulouse, France-based Airbus SAS for a dwindling number of orders.

The purchases may deflect criticism China is using its pegged currency to gain advantages over its trading partners.

US Commerce Secretary Don Evans has denounced China as a closed market and predicted that the US trade deficit with the world's most populous nation will reach US$130 billion this year.

"China needs to spend more to pacify US criticism of its trade and currency policies," Louis Chan, who helps manage US$500 million at East Asia Asset Management Co, said. "Aircraft orders are often used as a tool to balance international trade."

The 30 planes on order will cost about US$2.01 billion, based on catalog prices. The list price for a 737-700 is as much as US$55 million. A 737-800 is worth as much as US$64.5 million, while a 737-900 can cost US$68.5 million.

Fairfield, Connecticut-based General Electric, the world's biggest maker of jet engines, will sell US$360 million of engines to the Chinese carriers. General Electric's joint venture with France's Snecma SA makes CFM56-7B engines for the 737 planes.

Each 737 runs on two CFM56-7B engines. The list price for the engine is as much as US$6 million each, said Ben Gong, sales director of GE Aircraft Engines China.

There will be orders for spare parts in the future, Gong said.

GE expects US$5 billion in revenue from China by 2005, up from about US$2.6 billion this year, chief executive Jeffrey Immelt has said.

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