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China Eastern Plans Huge Plane Orders for Expansion

China Eastern Airlines intends to buy 40 Airbus A320 aircraft under an agreement signed between France and China and is in talks for a similar number of Boeing 737s to expand its domestic and regional routes, its senior executive said.

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But Chairman Li Fenghua, in Hong Kong to lobby investors to back a $920 million deal to sell a 24 percent stake to Singapore Airlines and Temasek Holdings, said the firm had no plans to buy Airbus's A380 superjumbo.

Li said many Chinese airlines were flying with empty seats on long-haul routes. China Eastern's overseas routes are loss-making.

"Chinese airlines' international routes have seen operating losses using their current planes. If we buy A380s, losses will deepen," Li told Reuters in an interview.

China Eastern , which is expected to return to the black this year, has applied to Beijing to buy 40 single-aisle A320 planes under a framework deal for an order of 160 Airbus passenger jets worth $16.7 billion signed by French President Nicolas Sarkozy and Chinese President Hu Jintao in November.

"We have applied for 40 but it is still uncertain how many we will get eventually," Li said.

Thus far, the only order announced under the agreement was with China Southern Airlines, which is buying 10 twin-aisle A330 aircraft for $1.8 billion at list price. Smaller carrier Shanghai Airlines has said it was looking to buy 10 single-aisle A320 planes.

Li said the new planes would be used to consolidate and expand China Eastern's domestic routes as well as routes to Japan and South Korea.

Fleet Expansion

Based on its current order schedule, China Eastern's fleet would increase by 53 percent to 322 aircraft in 2010 from 210 now. "A big portion of the new planes will be allocated to Shanghai routes, and that's before the potential A320 and B737 orders," he said.

Based in Shanghai, China Eastern faces keen competition from the country's flag carrier, Air China, and China Southern Airlines.

Earlier this year Air China said it intended to create a "super carrier" by taking over domestic airlines. It has stepped up cooperation with Cathay Pacific Airways after a share swap deal last year.

Li acknowledge competition had increased in China's airline industry, especially in Shanghai as its two airports are congested after China increased access for foreign airlines.

China Eastern hopes to fend off competition by forming a partnership with Singapore Airlines, which could give it access to Singapore Airlines' extensive global network and financial backing.

China Eastern controls 36 percent of the Shanghai market and hopes to expand its share to more than 50 percent after the Singapore Airlines deal, which shareholders will be asked to approve at a meeting on Jan. 8.

Li also said the company's expansion plans had been disrupted by a delay in the delivery of an order of 15 Boeing 787 aircraft. He said the company was in talks with Boeing on compensation. "We'll miss a good chance with the Beijing Olympics to promote our brand due to the delay," he said.

China Eastern had expected to receive the first 787 in June, making it the first Chinese airline to take delivery of the Dreamliner.