Boeing ($BA) announced that China Aviation Supplies Holiding Co. has agreed to buy 300 aircraft in a deal worth approximately $37 billion as the nation’s airlines scale capacity to meet rising demand.
The deal includes 260 narrowbody planes and 40 widebody aircraft, the Chinese company reported after President Trump met with Chinese President Xi Jinping on Tuesday in Beijing. Boeing has yet to comment on the details of the agreement.
Bloomberg reports:
Chinese airlines have been on a plane-buying spree amid a projection for the country to overtake the U.S. as the largest air-travel market possibly in as soon as in five years. The state has previously placed large orders through a centralized buyer before dividing them up among its airlines and leasing companies, including a $22 billion deal with China Aviation Supplies that was announced in July.
In September, Boeing raised it’s 20 year forecast for Chinese aircraft demand based on growth for the travel habits of China’s growing middle class. The planemaker thinks China needs 7,240 new planes over the next two decades, at a value of around $1.1 trillion – vs. previous estimates of 6,810 planes.
The contract is one of several in a cumulative $250 billion worth of deals President Trump can claim from his maiden trip to Beijing – though it is important to note that most of the quarter-trillion in agreements are MOU’s (Memorandum of Understanding) – which isn’t the same as a contract.
“To me this is an old-style visit when you pile up all the deals so you can to get a big number,” said James McGregor, China chairman of the consultancy APCO Worldwide. “This was normal when the U.S. and China were just building ties, but now China is a global business power and has very damaging industrial policies and this seems naive. This is all for show for President Trump to demonstrate his deal-making prowess.”
Both Trump and Chinese President Xi Jinping hailed the deals on Thursday, calling them examples of “win-win” cooperation between the world’s biggest economies. At the same time, Xi said that China would open its market according to its own “timetable and roadmap” while calling to respect each other’s “differences” — showing that Trump will find it harder to press him for substantive policy changes. –Bloomberg
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No teeth. Who’s going to hold China’s feet to the fire over these MOU’s ?
The quid pro quo is that they get the planes. If they don’t honor the MOU, they won’t receive the planes.
They can’t be expected to work out deal terms in a day for something so large and it’s not Trump’s to fully negotiate. Boeing management will be negotiating the terms so all one could expect at this point is an MOU.
That in itself isn’t binding but it’s a normal first step.