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Investing.com - Chinese airline stocks fell sharply on Friday following reports of potential large aircraft orders with Boeing (NYSE:BA) and Airbus, despite Morgan Stanley (NYSE:MS)’s assessment that market reaction was overblown.
Reuters, citing Bloomberg, reported potential deals for Boeing and Airbus to each sell 500 planes to China, though none of the parties involved have commented on these reports. China’s three largest airlines saw their Hong Kong-listed shares drop by an average of 4.5% during Friday’s trading session, compared to a 0.3% gain in the Hang Seng Index, while their mainland-listed A shares declined 1.8% against the Shanghai Composite’s 0.7% rise.
Morgan Stanley stated that the market has overreacted to the aircraft order news, noting that even if the reports prove accurate, the orders would likely have "only a limited impact on capacity or capex in next 3-4 years" due to manufacturer production constraints and existing order backlogs.
The investment bank highlighted that Chinese airlines are facing "fundamental challenges" beyond fleet concerns, pointing to a "weaker-than-expected summer, led by demand softness and mix deterioration." Morgan Stanley’s research indicated "sharp declines in group travel from SOEs and government employees this summer."
Morgan Stanley emphasized that "anti-involution measures are essential for Chinese airlines," suggesting carriers need to address fundamental issues in pricing power before seeing improvement, which would require either a demand pivot, passenger mix improvement, or strategic actions to avoid destructive competition.
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