A model of a Boeing 787-8 Dreamliner (L) is displayed at the Asian Aerospace 2007 in Hong Kong, September 4, 2007. Asia and China are a pivotal battleground between Airbus and arch-foe Boeing, both of whom are battling to sell jetliners to the country's top carriers.
Photo: Reuters
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China About to Take Off
// International aircraft producers entered tough competition for the Chinese market
Major aircraft-producing corporations turned their attention to the Chinese market, just like car holdings, producers of household appliances and consumer goods. Last week, during the Asian Aerospace 2007 International Expo in Hong Kong, the world’s leading aircraft-building companies said that China is one of the most promising markets for them. They consider both selling aircrafts to Chinese companies and organizing local production. However, China is getting ready to compete with aircraft producers, instead of just buying their products and producing components for foreign companies. In early 2008, the first commercial airplane produced in China will carry out a test flight.
Oriental Front
Last week, during the Asian Aerospace 2007 International Expo in Hong Kong, the world’s leading aircraft-building companies acknowledged that the Asian market, and the Chinese market in particular, is among the priorities of aircraft industry development in the near future. Boeing corporation, the leader of China’s commercial aviation market with a 60-percent share, believes that China will be the main market for it in the upcoming 20 years, after the U.S. market. John Bruns, vice president of Boeing’s Chinese branch, said that China will need 2,900 new airplanes soon, to satisfy the growing demand of air transportation industry. “Boeing’s 170 employees now work in China. Besides, 3,000 people work in joint ventures with Chinese companies. Moreover, Boeing has already trained 34,000 Chinese aviation specialists,” said Bruns. China is Boeing’s major foreign supplier of components for a total amount of $2.5 billion. As Bruns said, China participates in producing all the existing Boeing aircrafts. The U.S. corporation said Thursday that it had received a large order from China Southern Airlines, a company with largest fleet in China. It ordered 55 liners (737-700 and 737-800) worth $3.8 billion in total. The company already has 129 Boeing 737 liners, and 14 more will be supplied under previously made orders.
Experts think that China will need more and more new airplanes with each year. According to the International Air Transport Association (IATA), China’s passenger turnover will be growing by annual 8.1 percent on average in the next three years. Richard Pinkem, senior analyst of Centre for Asia Pacific Aviation international research company, said: “China is transforming from a country with a relatively small aviation market into one of the world’s major markets which needs many new aircrafts.”
Airbus corporation, Boeing’s chief rival at the international market, is trying to keep up with Boeing in China. John Lihi, chief operating officer of Airbus, said the demand for his company’s products in China will make up around 100-150 aircrafts annually in the coming five years. China Southern Airlines has already ordered five A380 super-liners. Laurence Barron, president of Airbus China, said: “We keep increasing our share at the Chinese market. Last year, we supplied 76 liners, which is 18 percent out of all aircrafts we produced in that period. Every fifth new Airbus airplane goes to China. I agree with Boeing that China will need around 2,000 aircrafts in the coming 20 years. We plan to occupy 50 percent of China’s aviation market by 2013.”
At the same time, Western companies realize that China is attractive not just as a buyer of airplanes, but also as a base for locating production there, which will be profitable both economically and politically [please see interview]. “We cannot sell airplanes worth totally billions of dollars to China without building bilateral partnership. China’s aviation market is now developing rapidly. Just a while ago, factories could only do die stamping, but they are becoming more and more perfect,” said Barron. Airbus involves many Chinese specialists into its projects. In June 2007, the corporation signed an agreement with the authorities of Tianjin city and the representatives of China’s Aviation Industry Corp. I (AVIC I) and Aviation Industry Corp. II (AVIC II) on building a factory for producing components for narrow-bodied A320 liners in Tianjin. Richard Pinkem said that locating the production of A320 parts in China “might give Airbus a certain advantage over Boeing in the sector of narrow-bodied airplanes in China”. Besides, Airbus wants to sell 5 percent in its A350 project to AVIC I and AVIC II by the end of 2007. Taking part in the project, the Chinese corporations will acquire the right to invest and to supply components for A350 liner, and to receive part of profits from A350 sales later.
Experts think the Chinese government is playing subtly, maintaining tough competition between Airbus and Boeing. Richard Aboulafia, vice president of Teal Group, a U.S. research company, said: “Airbus and Boeing are now running neck-to-neck, and the Chinese authorities are doing everything to keep it up. However, Airbus will not be able in the coming years to offer anything in the sector of airplanes with passenger capacity ranging between 200 and 500 seats, until A350 comes out. To maintain the balance, the Chinese government might choose Airbus for buying narrow-bodied liners, and Boeing – for wide-bodied ones.”
Regional Sector
It is not just Boeing and Airbus who are interested in the Chinese market. Canadian company Bombardier, the leading producer of regional airplanes, actively attracts local partners. AVIC I makes hulls and other parts for Bombardier’s Q400 turboprop airplanes. Another large maker of regional planes, Brazil’s Embraer, came to the Chinese market back in 2000. Two years later, Embraer founded Harbin Embraer Aircraft Industry joint venture with Harbin Aircraft-Building Company. The JV now makes regional airplanes ERJ 145.
Meanwhile, China’s aviation industry is getting ready to enter the competition with international aircraft producers, at least in the regional airplanes sector. Chinese specialists are now actively working on the ARJ-21 (Advanced Regional Jet) project. It will be the first Chinese commercial airplane with passenger capacity of 78-85 seats. The Shanghai Aviation Factory began assembling these airplanes in spring. Main components came from Chinese companies in the cities of Sian, Chengdu, Shenyang, and Shanghai. Chinese airlines have already ordered 71 such planes. According to the Chinese Communist Party’s official newspaper, the first ARJ-21 airplane will be assembled in late 2007. Its first test flight is scheduled for March 2008. Customers will receive the planes in the third quarter of 2009.
Russian Issue
In recent years, Russia has supplied almost no civil airplanes to China. In November 2006, during Airshow China-2006 exhibition, China received an offer to organize a joint production of passenger and transport airplanes. Boris Aleshin, head of the Russian Federal Agency for Industry, said back then: “It will be a wide-bodied airplane with capacity between 275 and 350 seats, and a corresponding transport plane variant.” Aleshin added there might be “a joint production able to compete with Airbus and Boeing”.
Alexander Rubtsov, director general of Ilyushin Finance Co (it promotes Russia’s Il-96 and Tu-204 to the market), said that Russia, together with China, should spend the first three years on drastically modernizing long-range Il-96 and medium-range Tu-204 airplanes with their cargo variants, so as to meet the market’s modern requirements. Igor Shevchuk, head of Tupolev company, estimated that “Russia can count on receiving between 10 and 15 percent of Chinese orders for long-haul passenger and cargo planes”. However, the project has not been initiated yet [please see interview]. In the regional planes sector, Sukhoi aircraft-building company was in talks with Chinese Aviation Import and Export Corporation on handing over to China the license for assembling up to 500 regional planes Su-80 (cargo-and-passenger carrier, 30 seats). Yet, the talks remained lax: the plane has not been certified, and there are no firm orders to pay for the certification. Moreover, experts characterize Su-80 off-the-record as an “initially over-heavy airplane” with “imperfect onboard equipment”. At last, Russia offers to China to participate in the project of short- and medium-range MS-21, but the airplane’s draft is still being developed.
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John Scholle, aviation analyst of Global Insight international research company: “Moving production to China allows gaining the Chinese government’s favor, and aviation holdings hope it will give them advantage.”
“Why did the leading international aircraft producers turn attention to China now?”
“China’s rapid development turned this country into a quite important market for aircraft makers. The passenger flights market is undergoing a boom, and it also has a huge potential for further development. While the prosperity level is increasing, more and more Chinese consumers can afford flights. Both Airbus and Boeing are trying to strengthen their presence in China, so as to use its potential. Since early 2005, Boeing has received orders from Chinese companies for 264 airplanes. China will be a source of profits in the future, and aircraft producers would be unwise not to notice it. There are two reasons why the two largest producers turned their attention to China, thinking of locating production there. First, just like other producers, they understand that production in China is profitable due to lower expenditures. Second, moving production to China allows gaining the Chinese government’s favor, and aviation holdings hope it will give them advantage when supplying jets to local state airlines. I am sure that if the Chinese government implements plans for producing China’s own airplane, both Boeing and Airbus will want to become partners in that project.”
“What is your estimation of Boeing’s and Airbus’ chances in the competition for the Chinese market?”
“I believe it is too early to discuss their chances in China yet. Both companies received quite many orders when China was massively buying jets for the last time.”
“Can Chinese aircraft producers compete with Western producers of commercial airplanes?”
“China still lags behind by at least 10 years from the general level of the large-scale commercial aviation market. Commercial aviation is absolutely different from military aviation. So, China does not yet have enough resources for developing the commercial sector. There are somewhat bigger chances that China will compete in the regional aviation sector, but these prospects are quite far yet.”
Interview taken by Evgeny Khvostik
Sergei Galperin, director of the civil aviation production programs of the United Aircraft-Building Corporation: “We lost our positions at that market. The time when China widely used Tu-154, Il-86, Russian cargo planes, is over.”
“In late 2006, Russia offered to China to organize a joint production of passenger and cargo planes. Do the talks continue?”
“We have not received a definite answer from Chinese partners yet. China is interested in making wide-bodied airplanes, but it cannot decide which of the two local corporations, AVIC I or AVIC II, could become the performer of that project. Judging by what Chinese newspapers say, a third corporation might be created. There was a meeting in August, where we told our Chinese partners that we are ready to build a wide-bodied airplane on a parity basis with China. At least, we offered that variant to them. However, China declared it intends to independently develop its own “big” airplane (that’s how they call it) with capacity of over 150 seats. Thus, it is unclear yet whether they will seek cooperation and with whom.”
“What are other possible joint projects of interest both to Russia and to China?”
“Narrow-bodied airplane for 150-200 seats, but it is the zone of competition with Airbus and Boeing, which makes it quite difficult. Actually, it is our MS-21 project, the participation in which has also been offered to China.”
“Soon, Russia’s regional project Sukhoi Superjet100 will compete with China’s regional plane ARJ. What do experts say about who has more advantages at the international market?”
“The customer will decide. Even Airbus and Boeing compete, and there is enough space for everyone.”
“In the last several years, Russia has not supplied civil airplanes to China. Does the United Aircraft-Building Corporation plan to change that situation?”
“Unfortunately, we have lost our positions at that market. The time when China widely used Tu-154, Il-86, Russian cargo planes, is over. Meanwhile, it is always easier to spoil one’s reputation that to restore it. However, the first good sign has appeared: Tu-204-120 was certified in China in summer. We signed a firm contract for 10 planes, and received advance payments for 5 of them. If the first plane had been supplied this summer, as planned, the supply of 10 planes would have been over in 2009. Yet, a delay has happened, and we are now waiting for Chinese experts to come to receive the first plane.
Interview taken by Alexandra Gritskova
Evgeny Khvostik, Alexandra Gritskova
All the Article in Russian as of Sep. 11, 2007
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