China fuels Boeing-Airbus fight for $300B in orders

   Date:2007/03/05
In the township of Yanliang, outside China's ancient city of Xi'an, the future of the world's aircraft industry is being made.

At the end of a narrow, pitted road is a modern steel workshop where Chinese tradesmen who earn as little as $100 a month are building a wing box for an Airbus SAS A320, a 150-passenger airplane.

Nearby, a separate team is working on vertical tail fins for Boeing Co.'s similarly sized 737s. The factory, part of a heavily guarded complex of 32 million square feet of industrial sprawl in which 21,000 people are employed, is owned by Xi'an Aircraft Industrial (Group) Co., which is also at work on another project: China's latest attempt to build its own passenger plane.

The wing box, which is the main part of the wing minus the flaps and internal electronics, is one of the A320's most- sophisticated parts. "For China, going from shirt factories to making Airbus wing boxes is some achievement," says Richard Aboulafia, a director at Teal Group Corp., a Fairfax, Va.-based aviation consultant.

The battle for China's skies between Airbus and Chicago- based Boeing, its archrival, will determine which aircraft maker achieves global leadership. It's now neck and neck. Last year, Airbus delivered slightly more planes to the world's airlines: 434 to Boeing's 398. Boeing booked more orders for future delivery: 1,044 to Airbus's 790.

"China is the fastest-growing aircraft market in the world by far," says Neil Sims, a project manager who oversees work at the Xi'an Aircraft factory on behalf of Toulouse, France-based Airbus. "The Chinese have said to us, 'Give us some of your technology, and we guarantee we will purchase some of your aircraft.' We have to get our share of the cake."

So far, Boeing, which entered the Chinese market 13 years ahead of Airbus, in 1972, has far more planes in the air. As of February, Chinese airlines were flying 560 Boeing planes compared with 319 Airbuses, giving Boeing a 64 percent market share.

Airbus has been gaining market share in China. The European company has set itself a target of grabbing 50 percent of the planes in service in China by 2013. Since 2004, Airbus has been getting the majority of China's orders. Of the 649 planes on order by Chinese airlines, 62 percent are Airbuses. Airbus delivered 76 new aircraft to China and received orders for 159 in 2006. Boeing delivered 28 and received orders for 112.

Airbus had been counting on sales in China to boost its fortunes after a delay in its new A380 super jumbo pushed it into a loss last year and sent shares of European Aeronautic Defence & Space Co., or EADS, its publicly traded parent, tumbling.

Sales of planes are booming as China's airlines race to keep pace with a surge in domestic air travel. Last year, 160 million Chinese took to the skies for leisure and business travel - a 15 percent increase over 2005, according to the General Administration of Civil Aviation.

To keep pace with the increase, China needs about 3,000 new planes by 2025, costing as much as $288 billion combined, according to both Airbus and Boeing. Already, the country is the world's second-largest market for airplanes, after the U.S.

The expansion in aviation is just the latest sign of China's growing economic might. Gross domestic product has soared by about 10 percent a year for the past three decades - more than triple the pace of U.S. growth.

Last year, China overtook France and the U.K. to become the world's fourth-largest economy. By the end of this year, China may overtake Germany's economy to rank third, behind the U.S. and Japan, according to Tao Dong, Hong Kong-based chief Asia economist for Credit Suisse Group.

With $1.06 trillion in foreign currency reserves China has the means to pay for its fleet expansion. The government is spending $18 billion to build 40 airports and transform many existing ones by 2010.

China has also radically improved its air safety record. In the 1980s, travelers flying in China were five times more likely to be in a plane crash than in the rest of the world, according to Boeing.

Now, China's airline safety record is on a par with North America's and surpasses that of Europe. According to the U.S. Federal Aviation Administration, in the 10 years ended in 2005, there were 0.4 accidents per million takeoffs in the U.S., 0.5 in China, 0.7 in Europe, 2.5 in Latin America and 11.7 in Africa.

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