Airbus, Boeing See Politics Make Good Business Sense in China

By Clement Tan

March 1 (Bloomberg) — China’s political leaders identified aerospace as one of 10 key industries in the country’s quest to become an advanced industrialized nation. Ahead of this weekend’s annual legislative session, Western planemakers — their future competitors — are helping them toward that goal.

Airbus Group SE will break ground Wednesday on a finishing center for its wide-body A330 jets in Tianjin, near Beijing, a decade after it opened an assembly plant there for single-aisle planes. Chicago-based Boeing Co. also is seeking a location in China for a plane-completion facility.

Opening plants in China, poised to become the world’s largest aerospace and air-travel market in two decades, is as much a political as an economic decision. One factor is proximity to customers: Chinese airlines order billions of dollars of planes from Airbus and Boeing every year, and doing some assembly locally eases the strain on the planemakers’ existing facilities. Equally important is the goodwill such investments earn.

 “It’s absolutely undeniable there’s been a communication of Chinese expectations for companies to build in China, to provide jobs in China, that they will be treated less equitably otherwise,” said Scott Harold, the Washington-based associate director of Rand Corp.’s Center for Asia Pacific Policy. “If you build in China, you’re a ‘friend’ of China.”

 Aerospace was one of 10 sectors highlighted in the “Made in China 2025” blueprint released at last year’s meeting of the National People’s Congress. China also has encouraged foreign planemakers to expand their local footprints: Airbus and Boeing are in joint ventures with units of state-owned Aviation Industry Corp. of China, or AVIC, to supply aircraft parts.

Airbus said its collaboration and joint ventures with Chinese partners were worth nearly $500 million last year, and Chief Executive Officer Fabrice Bregier frequently emphasizes the importance the company places on the Chinese market.

Boeing says it contributes as much as $1 billion annually through its activities in China, including supply procurement, joint-venture revenues, operations, training and research and development investment.
“Boeing and China have a long-term partnership, and we will continue to broaden and deepen this relationship,” Wang Yukui, a Beijing-based spokesman for Boeing, said by telephone Monday.

Plane Orders

In return, China has showered Airbus and Boeing with aircraft orders — including a deal Monday with Air China Ltd. for 12 A330-300s worth $2.9 billion. Last year alone, Chinese airlines and leasing companies announced orders for some 780 planes valued at about $102 billion, according to data compiled by Bloomberg. Over the next two decades Chinese carriers will require about 6,330 new planes worth $950 billion, about 17 percent of the global total, according to Boeing.

Airbus’s new center in Tianjin was announced last year along with a string of orders for the current A330. Those orders will help the company avoid deep production cuts as it transitions to a revamped model with new engines.

Speaking Tuesday in Beijing, Airbus China President Eric Chen said the company will continue delivering 20 A330s to Chinese clients each year, with the Tianjin plant able to put the finishing touches on two planes a month. China accounts for 24 percent of Airbus’s total plane deliveries, he said.

Airbus has a 60 percent share of the wide-body market in China, and the new facility will help maintain that lead, Chen said. Plans to expand the existing Tianjin assembly plant for narrow-body A320s also are “under study,” Chen said.

Grand Ambitions

One day, if China’s leaders have their way, Airbus may have to contend not only with Boeing but with local competition too. Led by state-owned Commercial Aircraft Corp. of China, or Comac, the country is working on developing its own large planes, and the government is keen for China to develop its own jet engines as well.

“It would be possible in 20 years for Comac to emerge as a credible challenger to Airbus and Boeing if it keeps developing new products and keeps up with technology,” said Olga Razzhivina, the London-based founder of Oriel, an aircraft appraisal consultancy.

For now, Chinese planes are still some way from commercial viability. Comac delivered the initial ARJ-21 regional jet to launch customer Chengdu Airlines Co. late last year but no date has been set for its first commercial flight, putting the plane about 10 years behind schedule.

The first test flight for Comac’s narrow-body C919, a project begun in 2008, also has been delayed and now is expected sometime this year.

Helping China

In the meantime, foreign companies are helping China build an aerospace logistical supply chain. Airbus said last year it will support AVIC’s development and production of cabin equipment, including airliner seats.

Honeywell International Inc., which supplies flight-control systems, wheels, brakes, auxiliary power units and navigation systems to the C919, also is working with Comac to get its planes certified.

Boeing’s 737 finishing center will be operated jointly with Comac. The new plant will help speed jet deliveries from Boeing’s Renton, Washington factory as the company raises production to meet “strong demand” for the plane, according to Boeing.

“The Chinese are clearly not just in this aerospace business purely for commercial reasons,” Rand’s Harold said. “They appear to be prepared to invest tens of billions of dollars and several decades to make it work, because they have identified the ability to design and manufacture a jet as a national political goal and an indicator of the nation’s technological prowess.”

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