An Unusual Deal for a Rival's Planes - New York Times

Boeing may soon be looking for buyers for long-range passenger jets built by its European archrival, Airbus, after a rare trade-in deal with one of China’s largest airlines.

The American plane maker 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 Monday.

Airbus has agreed to take back the other half of China Eastern’s A340s as part of a separate deal to sell it 15 A330 jets, but it faces probable delays in the deal because of a dispute between China and Europe over emissions.

The two deals illuminate an obscure corner of the jetliner industry, in which 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 equipment in an industry with $100 billion in annual new sales.

But experts agree it is unusual for aircraft to cross the barrier separating Airbus and Boeing in their combative duopoly. When that happens, emotions are stoked on both sides.

“It sometimes happens, but it is not their preferred route at all,” said Karl Brünjes, managing director of RPK Capital Management, a Britain-based specialist in secondhand aircraft.

In the mid-1990s, Boeing bought A340s from Singapore Airlines, including some still being assembled, to support a blockbuster sale of 777s. When delivery came, there was a brief spat over whether Airbus would provide support for the A340s, according to people familiar with the deal, who were not authorized to speak on the record.

The subsequent trading spawned a joke inside Boeing that Boeing had placed more A340s than Airbus that year â€" 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, Boeing bought a handful of new Airbus A310s assigned to Kuwait Airways, clearing the way for the airline to take Boeing planes instead.

Airbus said its policy was not to buy Boeings.

“It is very rare in this industry that someone buys their competitor’s aircraft. We do not do it,” said John Leahy, the company’s sales chief.

Boeing said it did not comment on specific transactions, but said in a statement: “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.”

The A340 entered service boasting “four engines for the 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.

Although 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, which are still relatively young, at an average age of 8.3 years.

According to the British consulting firm Ascend, the market value of the jets being sold to Boeing is $55 million each, but some dealers called that figure optimistic.

“The A340 is a difficult market and they will be competing with the manufacturer,” Mr. Brünjes said, noting that Airbus already had 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,” Mr. Brünjes said.

Airbus faces an even tougher task, as its half of the proposed A340 fleet trade-in is about 15 years old on average, and the model has less range.

Ascend’s market value for those five A340-300 jets is $15 million each, but Mr. Brünjes estimated a seller would be lucky to get much more than the value of the engines â€" about $4 million. The A340 averaged $250 million new at list prices, before it was taken out of production.

Airbus says a jet expected to arrive in 2017, 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. In the meantime, the smaller A330 is selling well and the 777 is said to compete on occasion with the much larger A380.

Boeing is considering revamping the 777 to protect its grip on the 300-seat to 400-seat market and to try to pre-empt the challenge from the A350-1000.