China Eastern Airlines Ltd signed an agreement subject to approval to purchase 70 Airbus A320neo aircraft, worth $6.37 billion based on the aircraft's listed price, the carrier said on Friday.
The new aircraft will be delivered to the airline between 2018 and 2020. The transaction price will be lower than the listed price, according to the carrier's statement.
"The batch of new airplanes used in the middle- and short-haul market will help the carrier increase competitiveness and reduce our operational costs," China Eastern said in a statement about the reason behind the deal.
By adding the new aircraft, the airline's capacity will increase by 12.65 percent. However, the deal is waiting for the authority's approval, China Eastern said.
The A320neo is the new engine variant of the existing A320 aircraft. It will be put into operation in 2017.
Before China Eastern's orders, Airbus SAS had already received more than 100 A320neo orders from Chinese clients, including ICBC Financial Leasing Co Ltd, Air China Ltd and Qingdao Airlines.
China Eastern also said it will sell all of its A300-600 passenger fleet of seven aircraft back to Airbus, withdrawing it this year.
The lower fuel consumption of the A320neo is a reason for the carrier to replace its old fleet with the new ones, analysts said.
The European aircraft builder will assemble the A320neo at its factory in Tianjin, Airbus said at the end of 2013. The second phase of the joint venture will last for 10 years.
China's domestic market continued to grow while the global aviation market was in a slump over recent years. Airbus forecast that China will overtake the US to be the world's largest domestic market by 2032.
Statistics from the International Air Transport Association show that China air traffic climbed 11.7 percent in 2013 compared with 2012 and was the strongest worldwide.
Chinese airlines' capacity rose 12.2 percent in 2013, making the market the second-largest globally, although the load factor declined 0.6 percentage point in 2013 over the previous year, the association said.
The healthy domestic market encouraged Chinese carriers to continue to increase their capacity, especially with narrow-bodied aircraft.
Boeing Co - the main rival of Airbus - also upped its efforts in the market and continues to increase deliveries to China.
"Boeing delivered 28 percent of its 737 aircraft made in the US to China in 2013," said Marc Allen, president of Boeing China.
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