Airbus Updates No.644

HONG KONG AIRLINES A380 ORDER UNDER THREAT IN WORD OF WORDS WITH EU


(Reuters) - Hong Kong Airlines Ltd has threatened to cancel an aircraft order with Airbus in the latest escalation of tension over the European Union's decision to make flights pay for their carbon emissions, the South China Morning Post reported.
The Hong Kong-based regional carrier, backed by China's fourth-largest carrier Hainan Airlines Co Ltd (600221.SS), said it was under pressure to cancel its order for 10 Airbus A380s with a list value of $3.8 billion, the Hong Kong newspaper said.
"We cannot do something which is against our country's interests," it quoted airline president Yang Jianhong as saying.
The A380 superjumbo is European aircraft maker Airbus's (EAD.PA) flagship passenger jet.
A spokeswoman for Airbus said the Hong Kong Airlines orders "have been placed in the order book and they remain there".
Others refused to comment.
"I cannot confirm this and I have no comment on this," said Kenneth Thong, Hong Kong Airlines' head of corporate governance and international affairs.
In Brussels, Isaac Valero-Ladron, EU spokesman for climate action, said the European Commission did not comment on "possible commercial decisions".
China has said it would not buy Airbus aircraft because of the EU's Emissions Trading Scheme ETS.L, which requires all flights using EU airports to pay for their carbon costs.
Plans to announce the high-profile A380 deal between Airbus and Hong Kong Airlines were called off at the Paris Airshow last June because of China's anger over the ETS, industry sources said.
But Hong Kong Airlines confirmed its order for the double-decker A380 some months afterwards.
Analysts say airlines typically have to pay a deposit of at least 5 percent when they place a firm order.
CHINA SOUTHERN
So far, China Southern Airlines Co Ltd (1055.HK) (600029.SS) (ZNH.N) is the only mainland Chinese airline to order the A380. Two of the five planes it ordered are already in service on the Beijing-Guangzhou route.
"The third A380 is arriving today and will start serving the Beijing-Hong Kong route tomorrow. There is no plan to cancel the other two," a spokesman of the airline told Reuters.
The Airbus-Boeing (BA.N) duopoly in the supply of larger commercial airlines means China has to rely on the European and U.S. firms to meet fast-growing demand for civil aviation.
In February, China banned its airlines from participating in the European Commission's ETS unless they were given approval.
At a daily briefing on Thursday, Chinese Foreign Ministry spokesman Hong Lei repeated China's opposition.
"The facts show that Europe's actions are unpopular and will have no effect," he said. "We hope that Europe can face squarely the international community's concerns and devote themselves to solving the issue, not further complicating it."
Apart from China, other major powers, including the United States and India, have objected to the EU's scheme on the grounds it breaches national sovereignty, but Europe's highest court in December said the EU law was valid.
Although Commission officials made no comment on the latest threat, they have said they will modify their law only if the U.N.'s International Civil Aviation Organization ICAO.L finds a global solution to the problem of rising airline emissions.
Commission director-general for climate action Jos Delbeke said this week the EU would respond to retaliation, although he did not specify how.
OTHER LATENT THREATS
Air China Ltd (601111.SS) (0753.HK), China Eastern Airlines Corp Ltd (600115.SS) (0670.HK) (CEA.N), China Southern and Hainan Airlines -- China's top four airlines -- would also consider legal action against the EU over the move to charge for carbon emissions on flights to and from Europe, according to the China Air Transport Association CATA.L.
The holding company that controls Hong Kong Airlines counts Hainan Airlines and Hainan Airlines' parent HNA Group among its top shareholders.
The carrier, which had 14 aircraft including six A330-200s and eight Boeing (BA.N) 737-800s, was taking delivery of eight to 10 more this year, its spokeswoman told Reuters in January.
It operates scheduled flights to up to 10 cities in China and other parts of Asia and Europe, including Indonesia, Japan, Singapore, Thailand, Vietnam and Russia.
The carrier has said it would start daily flights between Hong Kong and London in March.
The ETS scheme would be unlikely to have a big impact on its customers as the flights would be all-business class.
In any case, the Commission has made clear the carbon cost per passenger would be only between 2 and 12 euros, depending on airlines' decisions about how much to pass on to customers.