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Airbus Orders Out from China

The aerospace industry hit a landmark today, with the first flight of the first A320 built in China. Airbus' goal is to build as many as four A320s a month at what is its first assembly line outside Europe.

China is the growth story in aerospace. Boeing's most-recent market forecast projects a $390 billion market for airliners in China over the next 20 years, which would make it the fastest-growing market in the world.

Historically, Boeing has dominated this market, but Airbus is bidding to gain more market share, largely on the strength of a new A320 assembly line in the city of Tianjin, which it is operating as a joint venture with state-owned China Aviation Industries Corp.
This is a key piece in Airbus' larger strategy. As Airbus CEO Tom Enders told reporters and analysts last week, "internationalization" is the future for the European jet builder, as it tries to move more manufacturing out of the high-cost Euro zone and into places where manufacturing is cheaper, like the United States, where a weak dollar -- at least relative to the Euro -- would lower costs. Learning how to manage a factory outside Europe is a key first step.

Likewise, Boeing has sent increasing levels of parts-supply contracts to Chinese manufacturers, including some of the key pieces (the rudder and leading edge) of the 787's tail.

Some question the long-term wisdom of these moves. Leeham Co. analyst Scott Hamilton says that by doing this, Airbus and Boeing are opening the door to unwanted competition.

After all, last year, China Aviation Industries launched its first regional jet, the ARJ21. Add this new A320 plant to the mix and it will "give China knowledge in assembling airplanes, and in my mind they are creating their own competitor," Hamilton said. "I don't think Airbus was wise to do that."

Others -- most notably Teal Group analyst Richard Aboulafia -- think it's pretty unlikely we'll see a Chinese competitor in aerospace any time soon. China has a checkered history with jet manufacturing, he notes -- most-famously, McDonnell Douglas' effort in the '80s to establish a factory to produce MD-80s was a failure. And even now, China doesn't seem to be developing the kind of broad-based supplier base needed to support an aerospace industry, he says. Many of the ARJ21 systems are made in the United States; so too are key components of the 787 tail sections that are being assembled in China.

"Some people say, 'Wow, China is building a national jet,'" Aboulafia quipped. "And I say, 'Wow, that is the stupidest thing I have ever heard.'"

Stupid or not, it's clear that China is trying to claim a place for itself in the jet-building business.