Loyal Boeing customer defects to Airbus: Xiamen Airlines to lease A321neos

Xiamen previously planned for Boeing’s 737 MAX to be its future fleet, ordering 30 for delivery between 2019-2022. Xiamen has given no indication it will change that order, but the A321neo aircraft end Boeing’s domination and make it more likely for additional Airbus aircraft – including widebodies – to join Xiamen’s fleet.

As much as airframers Airbus and Boeing chase large volume aircraft deals, they also have a special interest in loyal airlines buying only from one manufacturer. Such had been China’s Xiamen Airlines. When it wanted to expand beyond its narrowbody Boeing 737 and 757 fleet, it turned to Boeing for 787 Dreamliners, one of the widebody aircraft typically more profitable for airframers to build. Now with almost 170 Boeing aircraft, Xiamen plans to defect by taking the Airbus A321neo. Xiamen issued a RFP to lease 10 A321neos from 2021-2023.

Like other medium-sized airlines using only Boeing aircraft, Xiamen has been particularly affected by the MAX grounding. It has received 10 MAX aircraft, about 6% of its narrowbody fleet, and has a further 14 in the US awaiting delivery, according to photos and aircraft logs. Early in the MAX grounding, Xiamen foresaw the impact and considered bringing back its 757s, which it retired a few months prior, but determined that to be too costly.

Boeing’s MAX grounding does not single-handedly push Xiamen in the direction of Airbus. But it does nudge Xiamen as part of a wider transition at China’s mid-sized airlines, which also includes all-Airbus Sichuan Airlines that is comparable in size to Xiamen.

They are neither domestic-wide airlines, which have cost benefits from scale and yield premiums from their proliferation, but nor are they from the crop of newer entrant airlines that are not saddled with legacy costs. Some of the newer airlines like Juneyao are full-service while others like Spring are low-cost, but all have underlying efficiency and want to exploit that by expanding. Xiamen and other state-owned airlines cannot restructure, so the answer is to grow (slots permitting) and let expansion spread out fixed costs.

Xiamen started as a regional airline, surpassed 100 aircraft in 2013, and would have ended 2019 with over 170 aircraft if not for the MAX grounding. It expects to have 560 aircraft by 2035. Even if the 560 figure proves too ambitious, such growth means Xiamen in the domestic market is starting to become a country-wide network airline. It also has to consider how to feed the long-haul flights it is pressured to operate.

Part of its future means evaluating having two aircraft suppliers to play them off in pricing, as do the larger Chinese airlines, including China Southern, which is Xiamen’s largest shareholder. China Southern already splits its fleet between Airbus and Boeing, and was the only Chinese airline to order the A380. Xiamen could piggyback on China Southern’s A320 family infrastructure – training, spare parts – before Xiamen builds up its own capabilities if it proceeds with an Airbus fleet larger than its initial 10 A321neo aircraft.

There were media reports in 2018 of Xiamen considering the A321neo, but some considered that negotiating leverage as US-China trade relations weakened. Those reports were about the neo LR, and Xiamen’s RFP did not specify what type of A321neo it is interested in. The longer-range neo would help Xiamen open further-flung markets without the large capacity of a widebody. Boeing does not have a direct competitor to the A321neo LR and, to the frustration of airlines, potential development is on hold as Boeing works through the MAX grounding. United Airlines, which had been seen as leaning towards Boeing, last month ordered an even longer-range A321 variant, the XLR.

Xiamen’s 737 NG fleet only goes up to the -800, equivalent to the A320. Its order for 30 MAX aircraft comprises 20 MAX 8s, the -800’s successor, and 10 MAX 10s, which Boeing developed to better compete with the A321neo family. China’s Okay Airways also ordered the MAX 10, but every other Chinese airline so far has only ordered the MAX 8 variant. It cannot be reassuring for Boeing that in a market the size of China, one of only two customers for its larger MAX is willing to try Airbus. www.forbes.com