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China Southern May Scrap 787 Orders as Delivery Delayed

China Southern Airlines Co., Asia’s largest carrier by passenger numbers, said it may join China Eastern Airlines Corp. in scrapping orders for Boeing Co. (BA) 787 planes after delivery of its first plane was delayed until July.

The arrival of the first of China Southern’s 10 Dreamliners on order has been delayed from around year-end because of certification issues, Chief Financial Officer Xu Jiebo said today by phone from Guangzhou, China. He didn’t elaborate on what the hold-up was.

“We won’t rule out the possibility of canceling or adjusting the 787 orders, if there is a huge gap between the plane’s functionality or delivery date and our requirements,” he said. The Guangzhou, China-based airline will seek compensation from Boeing for the late delivery, he said.

China Eastern, the nation’s second-biggest carrier, yesterday swapped orders for 24 Dreamliners for smaller planes, citing late delivery and waning international travel demand. Boeing handed over the first 787 to All Nippon Airways Co. in September, ending more than three years of delays caused by the use of new materials and production processes.

Boeing’s China spokesman Wang Yukui said he couldn’t immediately comment on the China Southern order or the 787’s progress in winning approval in China. Three calls to the Civil Aviation Authority of China went unanswered.

Regulators’ Approval

The Chicago-based planemaker received certification for the 787 from the U.S.’s Federal Aviation Administration, the European Aviation Safety Agency and Japan’s Civil Aviation Bureau in August. Boeing has won orders for more than 800 of the planes, making it the company’s fastest-selling jet ever.

“As we look forward, we expect to see the Dreamliner order base increase, we expect to see more orders, we expect to see more cancellations, especially as we go through mitigation with our customers,” Randy Tinseth, Boeing’s marketing chief, said today in Seoul, in remarks confirmed by the company.

Airlines generally have to pay penalties if they cancel orders, while planemakers face charges if they don’t deliver planes on time or if the jets don’t perform as expected.

Air China Ltd. (601111), the nation’s largest international carrier, said by text message that there are no changes in its order for 15 787s. The planes are due to be delivered from the end of 2015 to mid-2018. Hainan Airlines Co.’s 10 787s are also still expected over the next two years, said Wu Feng, a press officer at parent HNA Group.

China Southern fell 8.5 percent in Hong Kong trading, the most in two weeks, to close at HK$4.29. Dow Jones reported the 787 delivery delay earlier today.

Air China, the nation’s biggest international carrier, dropped 6.2 percent to HK$5.78. China Eastern declined 8.8 percent to HK$2.60. Boeing rose 2.7 percent to $63.47 in New York trading.

Shanghai-based China Eastern yesterday said it was switching its 787 orders for 45 737-800s. The carrier is also returning five A340-300s to Airbus SAS in exchange for 15 smaller wide-body A330s.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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