China Southern to Buy 55 Boeing 737s

China Southern Airlines Co. agreed to buy 55 Boeing 737 aircraft to accommodate increasing demand for flight services in China, enhance competitiveness and renew its fleet. The deal, which requires approval by China Southern shareholders, includes B737-700 and B737-800 aircraft. Due to a confidentiality agreement, China’s largest carrier by fleet size did not disclose what it was paying for the aircraft, but said the price was “significantly lower” than the $57M-$67.5M catalogue price range of a B737-700 and the $70.5M-$79M range for a B737-800. At catalog prices, the purchase would cost between $3.1B and $4.3B. China Southern, which will use cash and notes to pay for the aircraft, said it will take delivery of the planes between May 2011 and October 2013. The announcement came shortly after a China Airlines B737-800 exploded in Japan and Japanese authorities ordered an inspection of all B737-800s owned by Japanese airlines as well as some 737-700s with similar engines. Earlier this year, China Southern bought another 37 Boeing 737-800s, six Boeing 777F freighters and 20 Airbus A320s. Also Monday, China Southern said it returned to profitability in the first half on strong passenger demand and appreciation of the yuan against the dollar. The airline said that, under Chinese accounting rules, it earned 308M yuan ($41M) for the six months ended June 30 compared to a loss of 854M yuan a year earlier as revenue rose to 25.21B yuan ($3.3B) from 21.14B yuan last year. Under international accounting rules, first-half net profit was 168M yuan ($22.1M), the company said.

Sources: Press release, AP
Commentary: China's Airline Industry: Robust Growth, But Risky Investing • Boeing Company: Inconsistent Fundamentals, Stock Severely Overpriced
Stocks/ETFs to watch: BA, ZNH
Earnings call transcript: Boeing Q2 2007

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