The US company has agreed to buy half of China Eastern's fleet of 10 Airbus A340 jets as part of a $6 billion deal to sell 20 Boeing 777s to the airline, the Shanghai carrier said in a stock exchange filing on Monday.
Airbus has itself agreed to take back the other half of China Eastern's A340 fleet as part of a separate deal to sell 15 A330 jets, but faces likely delays in getting the deal done due to a row between China and Europe over emissions.
The two deals lift a veil on an obscure corner of the jetliner industry, where planes are traded in like used cars.
Just like car dealerships, the world's dominant aircraft manufacturers sometimes offer to take back their old models when trying to persuade airlines to upgrade to the latest models, in an industry with $100 billion in annual new sales.
But experts agree it is unusual for aircraft to cross over the barrier separating Airbus and Boeing in their combative duopoly, and when they do it stokes up emotions on both sides.
"It sometimes happens but it is not their preferred route at all," said Karl Bruenjes, managing director of UK-based RPK Capital Management, a specialist in second-hand aircraft.
The deal echoes a move by Boeing to buy A340s from Singapore Airlines in the mid-1990s including some still in assembly. Back then, the aim was to support a blockbuster sale of 777s. When delivery came there was a brief spat over whether Airbus would support the A340s, according to people familiar with the deal.
The subsequent trading spawned a joke inside Boeing headquarters that Boeing had placed more A340s than Airbus that year—a source of irritation for Airbus that may be repeated if Boeing quickly sells the jets it plans to buy this time.
Airbus halted production of the slow-selling A340 last year.
In 1984, according to industry sources and web databases, Boeing bought a handful of brand-new Airbus A310 models assigned to Kuwait Airways to allow the airline to take Boeings instead.
In the European camp, in 2008 Air Algerie told the United States that Airbus had offered to buy its entire Boeing fleet to prise open a key Boeing client, according to an unconfirmed account in a cable marked "sensitive" and released by Wikileaks.
Airbus said its policy was not to buy Boeing airplanes.
"It is very rare in this industry that someone buys their competitor's aircraft. We do not do it," sales chief John Leahy told Reuters.
Boeing said it did not comment on specific transactions, but a spokesman added: "In general it is fair to say that at times we do take airplanes in trade, including occasionally non-Boeing airplanes, as part of our orders transactions."
Difficult second-hand market
The A340 entered service boasting "four engines for long haul" in 1993, shortly before the 777 ushered in an era of two engines for all but the biggest aircraft or the longest routes.
While the 777 enjoyed record sales last year, Airbus decided to halt production of the A340, which was outsold four to one.
China Eastern's A340 fleet includes five A340-600s, until recently the world's longest jetliner and still relatively young at an average age of 8.3 years.
According to UK consultancy Ascend, the notional market value of these jets, which are due to be sold to Boeing, is $55 million each, but some dealers called the figure optimistic.
"The A340 is a difficult market and they will be competing with the manufacturer," Bruenjes said, noting that Airbus already has nine A340s on its own list of trade-ins for sale.
"The value will mainly be in the engines, not so much the airframe. An existing operator might be interested in getting some at cheap prices, but we wouldn't pay more than $30 million each, and that's if we looked at them at all," Bruenjes said.
Airbus faces an even tougher task if gets the green light from Beijing, since its half of the proposed A340 fleet trade-in is older at roughly 15 years and the model has less range.
Ascend's market value for those five A340-300 jets is $15 million each, but Bruenjes estimated a seller would be lucky to get much more than the value of the engines—some $4 million.
The A340 averaged $250 million new at list prices before it was taken out of production. In practice jetmakers take trade-ins to facilitate new sales rather than make extensive profits.
Airbus says a future jet, the carbon-composite A350-1000, will leapfrog the 777 and wrest back one of the most lucrative parts of the global airliner market from Boeing. Pending that jet's arrival in 2017, the smaller A330 is selling well and the 777 is said to compete on occasions with the much larger A380.
Boeing is considering revamping the 777 to protect its grip on the 300-400 seat market and try to pre-empt the challenge from the A350-1000, which is still trying to establish momentum.
Copyright: Thomson Reuters 2012