A Chinese airline that’s been an exclusive operator of Boeing Co. jets for more than 30 years is in talks with Airbus SE on a potential plane purchase, amid growing trade tensions between Beijing and the U.S., according to people familiar with the matter.

Executives at Xiamen Airlines, which is majority-owned by the state-run China Southern Airlines Co., met with a high-powered Airbus delegation visiting China from Europe last month to advance the negotiations, said the people, who asked not to be identified because the process isn’t public. Xiamen is predominantly interested in the longer-range version of Airbus’ A321 narrow-body planes, they said, though the talks are still at an early stage and the size of a potential order hasn’t been set.

Xiamen, based in China’s southeast, currently doesn’t have plans to buy Airbus planes, a spokeswoman said in response to Bloomberg News.

Should it come off, an Airbus purchase would be a blow to Boeing, which secured Xiamen last year as a launch customer for the latest variant of its best-selling 737 Max plane, a direct competitor to the longest range A320. It also highlights the risks of U.S. President Donald Trump’s high-stakes effort to curtail China’s rise as a global economic rival. Chicago-based Boeing has sought to avoid becoming entangled in the growing rift between the U.S. and China, after initially being tagged as a possible target for higher tariffs.

Boeing fell 0.3 percent to $358.34 at 10:05 a.m. in New York. Airbus slipped by 0.5 percent to 98.83 euros in Paris.

Airbus Visit

Talks between Xiamen and Airbus began informally around May, as the trade tensions heated up, according to the people. The discussions gained intensity in September, when senior Airbus executives including Chief Executive Officer Tom Enders and incoming CEO Guillaume Faury visited China, they said.

During the trip, Airbus executives also met with Chinese customers to revive prospects for a potential $18 billion deal, Bloomberg reported at the time, citing people familiar with the visit. While a final agreement for that transaction might not be reached in time, China is eager to parade an order at an inaugural import-export fair in November, where the government is expected to unveil a series of agreements to demonstrate the nation’s spending power and weight in global trade.

The Xiamen talks are separate to this, the people said. While the airline had been in touch with Airbus in the past, it only began to seriously consider the European planemaker as the trade war heated up, they said. The airline has been reluctant to lose the cost advantage of operating a fleet of aircraft from a single manufacturer, and it may ask leasing companies to assist with a purchase, depending on the number of aircraft involved.

Boeing Order

A spokesman for Airbus declined to comment on whether talks with Xiamen were underway. China’s National Development and Reform Commission, the body that would have to sign off on any plane order, didn’t immediately respond to Bloomberg’s faxed request for comment.

Xiamen “have been and are a great customer” for Boeing, Vice President for Marketing Randy Tinseth said in an interview on the sidelines of an Association of Asia Pacific Airlines meeting in Jeju, South Korea on Friday.

Xiamen has utilized Boeing aircraft since it started out as a regional carrier within mainland China in the 1980s. It operated 737s before expanding into longer-haul routes with the 787 Dreamliner in 2015. The carrier currently has more than 170 Boeing jets.

At the Paris Air Show last year, Xiamen ordered Boeing’s 737 Max 10 and said it aimed to lift its total fleet to 280 by the end of the decade.

China has become a battleground for the two aircraft titans as they seek to rule an aviation market expected to become the world’s biggest early next decade. The government, which negotiates its aircraft deals via a central purchasing group, typically splits orders between the planemakers to meet its rapid expansion goals.

But the trade war brings an added dimension. China’s leverage when it comes to tariffs is limited because it doesn’t import as much from the U.S. as it sells. The world’s second-biggest economy has other levers it can pull, however, from ramping up regulatory hurdles for American companies in China to throwing up roadblocks to U.S. foreign policy goals.

 

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Photo Credit: An Airbus SE A321 plane fuselage sits on the production floor at the company's final assembly line facility in Mobile, Alabama. Luke Sharrett / Bloomberg