China Eastern's aggressive growth drive has been spearheaded by managers brought in by its state-owned parent in 2008 to turn around the then-unprofitable carrier, which at one point was on the brink of insolvency due to bad oil-hedging bets and sluggish demand during the global financial crisis. The new management implemented cost-cutting measures, including deferring aircraft deliveries.

Shares in China Eastern traded in Hong Kong have risen nearly 52% since the start of 2009, exceeding the 26% rise in the city's benchmark index.

The company has returned to financial strength and secured its dominance in Shanghai, but has had mixed success in its attempts to expand its international routes. For one, like other mainland Chinese carriers China Eastern lags far behind other global carriers in product offerings and service standards, putting it at a competitive disadvantage.

In addition, Mr. Luo said the air-travel market has been weakening due to the recent market downturn as corporations cut travel budgets, making it more difficult for Chinese carriers to operate long-haul international routes.

International services contributed about 30% of China Eastern's total passenger revenue in the first half. The airline said last week it plans to shift some of its capacity from international routes to domestic ones beginning this quarter because of the weakening global economy, which contrasts with strong travel growth in China.

"It's the right call for China Eastern to refocus efforts on its domestic market but with more capacity being added to the market, the carrier may face rising competition on fares as well as reduced demand in the longer term if there's a hard landing in China's economy," said Jim Wong, a transportation analyst at Nomura.

China Eastern, which operated 362 planes as of June, ordered the Boeing 787s as part of a 2005 agreement between the Chicago-based aerospace giant and the Chinese government for the purchase of 60 Dreamliners. Bulk commercial aircraft deals by the government are common in China, and analysts say purchase decisions are often politically motivated.

The twin-aisle 787s, which in some variants can carry as many as 290 passengers, are designed mainly for long-haul routes. The smaller 737s, Boeing's best-selling commercial aircraft, mainly fly short routes.

Boeing's loss of China Eastern's Dreamliner order seems to be a gain for rival Airbus, a unit of European Aeronautic Defence & Space Co. China Eastern also said Monday that it is buying 15 wide-bodied Airbus A330s valued at a total of US$2.53 billion on the basis of list prices. Airbus is offering delivery slots between 2013 and 2015. As a sweetener for the deal, Airbus agreed to buy back five of China Eastern's four-engine, fuel-thirsty Airbus A340-300 aircraft.

China Eastern appears to be alone among the nation's airlines in its decision to cancel the 787 orders. Boeing said Tuesday that the three other major Chinese carriers that have ordered the planes remain committed to the 787s.

Meanwhile, China Southern Airlines Co. said Tuesday that the delivery of its first Boeing 787 Dreamliners would likely be delayed by at least another seven months.

"We are very disappointed with the continued delays" in Boeing 787 deliveries, said China Southern's chief financial officer, Xu Jiebo. He said some compensation for the latest delays would be "necessary," but declined to elaborate.