Airbus May Build Factory In China

This is news. Bloomberg covers the story. China apparently may need 1,790 planes new planes by 2023 Airbus estimate, and it makes sense to, well, make them in China.

Toulouse-based Airbus, which is trailing Boeing in new orders this year, may win an order for as many as 150 planes valued at $9 billion, said people familiar with the negotiations yesterday. Chinese Premier Wen Jiabao may announce at least part of the order today at a Paris press conference with his French counterpart Dominique de Villepin, said the people, who declined to be named.

The European planemaker said yesterday after Wen’s visit that it might open a factory in China for assembling A320 planes. Air China and the country’s six airline groups may need 1,790 planes valued at $230 billion by 2023, Airbus estimates. Boeing on Nov. 20 won an order from China for 70 planes worth $4 billion.

Airbus spokeswoman Barbara Kracht declined to comment yesterday on the Chinese order. Ren Houxiang, director of the Civil Aviation Administration of China in Beijing, declined to comment Dec. 2 on the likelihood of China signing an order with Airbus. Repeated calls to the Chinese embassy yesterday weren’t answered.

More from Reuters here.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

14 thoughts on “Airbus May Build Factory In China

  1. The US administration has already made a formal trade issue of the extent of governmental “launch aid” in the EU in support of Airbus and I would anticipate that its concerns can only be heightened by the prospect of Airbus airliners being built in China.

    Apart from all the regular issues relating to China, over exchange rates and labour costs, and the long-standing issue with the EU of state aids for Airbus, there is now the prospective gain to China of “learning-by-doing” which is bound to benefit China’s competitiveness downstream.

  2. This Frano-Asian affair is bound to stir up some bad coughs over at Boeing. For France, China, and perhaps even Europe it is good news though.

    This article (francophone) from Nouvelobs is a good hub for the event as well.

    http://archquo.nouvelobs.com/cgi/idxlist2?a=art&aaaammjj=200512&aaaammjj2=20051206&amjg=200512&num=000000375&m1=chine&m2=&m3=&rubrique=&rubrique_sci=&amj1=&amj2=&host=http://permanent.nouvelobs.com/&debut=20051121

    This recent article from the Economist also provides with a good overview of the Airline industry.

    http://www.economist.com/business/displaystory.cfm?story_id=5135765

    “But perhaps the most conclusive indication of brightening skies is the boom in aircraft orders that is stretching Boeing and Airbus production plants to the limit.”

  3. Actually, to build a factory in china is a sign of desperation.

    Some years back a similar deal was presented to Boeing. Boeing said “no”…

    Not for nationalistic reasons, but that would entail turning over the designs of the wings to the Chinese.

    As a Boeing exec then said to me “when you give away the wing, you give away the plane”.

    Airbus would definitely get a short term boost, but if in 10 years the Chinese no longer need you to build a plane, what exactly have you wrought?

  4. Peak oil is going to ensure that in a few years time (anything from 2 to 20 depending on whose numbers you believe) mass air-travel is going to be a thing of the past.

  5. “Airbus would definitely get a short term boost, but if in 10 years the Chinese no longer need you to build a plane, what exactly have you wrought?”

    And China is incapable of designing wings themselves?
    What you have bought is ten years of profits, and some goodwill.

    The US is still in denial about China. They seem to imagine that they (and possibly the other white-skinned folks in Europe) are the only smart people in the world, the only ones capable of building airplanes, radar, advanced CPUs and so on. Even those everyday facts that confront them (eg Prius, LCDs pretty much exclusively made in Asia, white light LEDs) that are simply tuned out.

    With 2 billion+ people in India and China, and with an education system that appears to be rather more devoted to science (and certainly to engineering) than the US, this sort of stuff is going to happen, like it or not. China has already threatened, in the case of both DVDs and cell-phones to roll out their own standards, every bit the quality equal of those invented by the west, because they felt the licensing terms imposed on them were too onerous. (It’s not clear to me just how this has played out, whether they got lower terms, or whether they have actually rolled out products based on those standards yet — perhaps another reader has details.)

  6. “there is now the prospective gain to China of “learning-by-doing” which is bound to benefit China’s competitiveness downstream”

    Absolutely Bob, very good point.

    “Actually, to build a factory in china is a sign of desperation.”

    And not to build a factory in China, what is that a sign of?

    Basically there is a kind of prisoners dilemna situation for the owners of techology these days, which revolves around how quickly to let go of it. Boeing can keep its technology to itself, stay out of China, lose 1,700 aircraft inside China, and lose China as a platform for a joint venture to sell to the rest of the developing world.

    Or they can do what airbus is doing, and take a lower cut on each plane, but sell more planes, and try to head off (which may or may not work) China’s drive to ‘go it alone’. A joint venture where we in Europe work the cutting edge technology, design etc, and we take advantage of the lower manufacturing opportunities that China offers seems to be a good bet.

    Maynard is absolutely right. China – like Japan – will eventually be doing the cutting end technology for itself, but maybe we just bought ten years (minimum) or a generation. Time will tell.

    Really Maynard is also right that many are in denial on China, manufacturing in many sectors will move to China (or India, see Sebastian Mallaby this week on Chennai). This won’t be just footwear and textiles as China moves up the value chain, but cars, aircraft and rocket techology.

    Basically, if you are interested in the poor part of the world getting rich, this can only be good news. Isn’t that what globalisation was supposed to be all about. Well, finally it seems to be working, and I for one am happy.

  7. Isn’t this fear of any Chinese technological gains partly down to the fact that the US sees China as a medium term strategic military competitor for predominance in the area? If it was Boeing doing this, there’s an argument that all those US defence dollars that keep the company afloat would be being used counter-productively.

  8. if you are interested in the poor part of the world getting rich

    Up to a point only. I want to see this only if it doesn’t hurt the part already rich.

  9. … and up to the point where the newly rich countries also share a decent respect for human freedom. With China that is very much in doubt.

  10. “when you give away the wing, you give away the plane”

    Are’t the wings of the lastest Boeing 787 being build in Japan?

  11. Peak oil will not stop airtravel. It may make it somewhat more expensive and even more cattlecar like but it is still really economical with $200 oil.

    There are only three really high tech parts of a plane.
    The electronics like radar which you buy on the open market because commercial airplanes are in reality only a small part of this market.
    The engines which neither Boeing or Airbus make. That knowledge is also very usefull in building other types of turbines and as such airplanes are not really the main market for those technologies.
    And as last the wing design. Its form is the real decider in how fuel efficient a plane is and the knowledge behind it can only be obtained by years of craft. So exporting that knowledge to Japan is really smart for Boeing *cough*

    Making the fuselage, assembly of the plane etc are all compareable low tech industries which are easy to upgrade from the technology used by the many aircraft companies that make smaller plains. Besides China had already an assembly plant for McDonald Douglas.

    ps. Moving the wing design to China is stupid whatever the costadvantage is. Moving the wing assembly of the A320 to China is IMNSHO not so smart but you must make sure they don’t obtain design knowledge.

  12. Thank you Charly, a truly lucid post. So rare for the normal crew at AFOE.

    I will confess to not being all to indoctrinated in aviation, though I have friends and business partners who are.

    Boeing partnering with the Japanese on plane design is not so odd, since they respect intellectual property. China and India? Well, let’s say that those 2.5 billion people can account for 1 sale of each DVD the US makes… and that’s about it.

    Boeing has the winning strategy overall. The 380 can make alot of noise, but the efficiency per passenger depends on the plane being full. And fewer than anticipated airports are willing to modify (especially in this tight air market) their runways and terminals for the additional size/wieght of the 380.

    Nope. The 7E7 is going to win the day in the long run. The estimated market for 380’s worldwide is less than 400. And that is viewed as optimistic. I’d be surprised if it topped 250.

    So, while the “euros” celebrate their largest commercial airplane ever (the 747 was released in, what… 1976?) It’s 30 years past its mark. The US did that 30 years ago, and now the industry is all about making money. Something the Yanks excel at…

    Oh darn! Where did my vowels go!

  13. The purpose of the A380 is not to make money directly but to have a competitor for the 747 (and kill it). There are not many routes on which those big planes can be operated but they make sence on the big routes (like New York – Heathrow). Not so much because they carry so many passengers but because of the politics of slots. BA et al. can keep Heathrow closed if they each only send out 2 planes a day but that is much more difficult when you send out 4 planes.
    So those companies really want the big planes which in the past meant a 747. If you have a 747 than the maintenance costs of other Boeing planes will be a lot cheaper as those planes share a lot so Airbus would have to give a bigger discount to close the deal. This is also why it is not important how many passenger versions of the 380 Airbus sells as long as it is (much) more than passenger version of the 747. And if you look at the numbers than this is clearly the case

    Outside of the passengers market you also have the freight market which is very important for those large planes. In the last 5 years Boeing sold mainly if not exclusively freight versions of the 747. In this market the 787 is simply not a real competitor as it is much more expensive to operate except on extremly long routes (read extremly long routes as the route London-Sydney which is totally unimportant in comparison with for example Japan-Europe).

    ps. Planning for the 747 started in 66 and first fight was in 69

  14. The deep knowledge you need for airplane wing design is not something you can protect with intellectual property law. Allowing Japan to acquier that knowledge means that they will build the next A320 and that in 30 years time Boeing will be death as a maker of commercial airplanes

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