By Jianguo Jiang
Oct. 16 (Bloomberg) -- Xi'an Aircraft International Corp., a
Chinese supplier of parts to Boeing Co. and Airbus SAS, agreed to
pay about 3.2 billion yuan ($405 million) in stock to buy
factories from its parent. The shares surged to a record.
The acquisition, which includes production lines for the
ARJ21 and MA60 regional planes, will probably boost net income
about sevenfold to 440 million yuan ($56 million) next year, the
company said in a statement to the Shenzhen Stock Exchange today.
China is developing the 70- to 90-seat ARJ21 as a competitor
to imports from foreign manufacturers such as Bombardier Inc. and
Empresa Brasileira de Aeronautica SA. China will probably add 798
regional jets by 2024 as demand for domestic air travel expands,
China Aviation Industry Corp. I, the country's biggest aircraft
maker, said last year.
``It's a big change for us,'' company spokesman Hao Zhanfu
said of the acquisition in a telephone interview from the
northwestern city of Xi'an. ``Our earnings will keep rising.''
Xi'an Aircraft shares rose by their 10 percent daily limit
to close at an all-time high of 11.83 yuan on the Shenzhen
exchange as they resumed trading after a three-week suspension.
The stock has jumped 158 percent this year, outpacing a 60
percent gain in the Shenzhen Composite Index.
Regional Jets
Earnings gains will be contributed by an increase in
components supplied to Boeing and Airbus, the ARJ21 project and
high production of MA60 jets, Hao said.
Xi'an Aircraft's parent makes wings and bodies for the ARJ21,
which has yet to make its commercial debut. China Aviation
Industry, the plane's manufacturer, in May delayed the model's
first flight for at least a year.
AVIC I, as the company is known, has won 41 orders for the
ARJ21 from domestic carries including Hainan Airlines Co.,
Shanghai Airlines Co. and Shandong Airlines Co. Deliveries of the
aircraft will start in 2008, AVIC I President Liu Gaozhuo said in
Beijing on May 24.
Brazil's Embraer, which has a venture in China to make
regional aircraft, said in February orders have not matched
expectations as the country's airlines focus on bigger passenger
planes. Embraer and Canada's Bombardier are the world's biggest
makers of aircraft that carry fewer than 100 people.
Parts Supply
China's economy has grown an average of 10 percent for the
past three years, boosting demand for business and leisure air
travel. Boeing forecasts the country will be the second-largest
market for commercial planes after the U.S., with demand for
2,600 airliners valued at $213 billion over the next 20 years.
Xi'an Aircraft will increase parts supply to Boeing and
Airbus, the largest makers of commercial jets, to $70 million
next year from $50 million this year, Hao said. The company will
make 20 60-seat MA60 planes in 2007, up from 8 this year, he said.
Boeing has sourced about $700 million worth of hardware from
China. More than 3,900 Boeing airplanes, or about 30 percent of
its fleet flying around the world, are equipped with parts built
in China, according to the company.
Airbus in June picked the northern Chinese city of Tianjin
as the site for a proposed assembly plant for its A320 aircraft.
Xi'an Aircraft plans to offer 660 million new yuan-
denominated shares, including at least 363 million shares to its
parent Xi'an Aircraft Group Co., and 297 million shares to nine
other unidentified investors, at 9 yuan each, the company said in
today's statement. That's a 16 percent discount to the closing
share price of 10.75 yuan on Sept. 22.
The share offer will increase the parent's stake in Xi'an
Aircraft to more than 50 percent from 43.5 percent, according to
Hao. The purchase will increase Xi'an Aircraft's net income from
an estimated 63 million yuan in 2006, the company said in its
statement.
