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Airbus's
decision to set up an assembly line in China illustrates the potential
challenges ahead for Western jet manufacturers as rivals from developing
countries seek to enter their thriving industry.
Airbus, a unit of Franco-German European Aeronautic Defence & Space Co.,
said it had finalized plans to build an assembly plant for its single-aisle A320
jetliners in the Chinese city of Tianjin. Airbus in December said it was
studying whether to build an assembly plant in China.
The decision came as Airbus announced that it had signed a contract to sell
170 planes to the Chinese government. The order for 150 planes from the A320
family of jetliners and a commitment to buy 20 of Airbus's proposed A350 XWB
two-aisle jetliners gives Airbus a major lift as it tries to recover from recent
management upheaval and embarrassing manufacturing problems. The A320s are
valued at $9.6 billion at list prices, although major customers typically win
large discounts.
Airbus's ability to clinch the new contract and a previous order with China
for 150 planes -- both announced during a visit to China by French President
Jacques Chirac -- was likely enhanced by its decision to build a plant in
Tianjin. Both orders will be filled partly by assembling planes in the Chinese
factory, using components shipped from Europe. Because Airbus's work in China
will involve assembly, which is less intensive technologically than other parts
of the plane-making process, it likely won't involve technology-trade issues.
Getting a strong foothold in China's vast market could be strategically
important for Airbus in the long term. Rival Boeing Co. of Chicago says China
will require about 2,880 new jetliners, with a catalog value of $280 billion, by
2025.
But the Airbus investment in the Chinese assembly line also could carry big
risks for EADS. The assembly plant won't be initially profitable as an
industrial venture for Airbus, because it will be expensive to establish and
operate, according to a person familiar with plans for the operation. An Airbus
spokesman in Beijing declined to comment on financial terms.
Moreover, Airbus's factory could in the long run help China establish its own
commercial airliner industry -- something the Chinese government has stated as a
national objective.
Some aviation-industry insiders say EADS's recent experience in Russia could
provide a lesson. Airbus and Boeing have established design offices in Moscow,
employing hundreds of aerospace engineers. EADS has also bought a 10% stake in
Russian plane maker OAO Irkut, promising increased cooperation.
In September, OAO Vneshtorgbank, a state-owned Russian bank, said it had
acquired more than 5% of EADS through stock-exchange purchases. The transaction
was coordinated by Russian officials with an eye toward linking their struggling
aerospace industry more closely with EADS, according to people familiar with the
transaction. Russian officials then called for a seat on EADS's board, a request
the company's co-chairmen quickly rebuffed.
The initiatives worry Mauricio Botelho, president and chief executive of
Brazilian plane maker Empresa Brasileira de Aeronáutica SA. Embraer's rivals are
"nurturing future competition in China and Russia...by providing the means for
them to develop their industries," Mr. Botelho said in an interview this summer.
Former Boeing Commercial Airplanes CEO Alan Mulally cited Japan as a major
Boeing supplier that for decades has talked about building its own planes but
never made the leap. Yesterday, a Boeing spokesman said that while "Boeing has
had a wonderful 34-year relationship with China" as a supplier for airplane
components, "we don't have plans to put an assembly line there."
EADS executives, meanwhile, say shunning developments in big new markets
would be a strategic blunder. "This is going to happen whether we like it or
not," EADS co-CEO Thomas Enders said in an interview last week. "The Chinese
have a burning ambition over the next 20 or 30 years to become an aircraft
manufacturer" and are sending thousands of aerospace engineers overseas to
study, he added.
Airbus's plans for China echo efforts in the 1980s by McDonnell Douglas
Corp., which produced only a few dozen planes in China because of snags. The
project closed soon after Boeing acquired McDonnell Douglas in 1997. Airbus
officials say they aim to learn from that project's
mistakes.
