Last updated at: (Beijing Time) Tuesday, January 20, 2004

Airbus aims high in China market

After beating Boeing in global deliveries in 2003, Airbus is stepping up its sales efforts in China, which is fast becoming the major battleground for the world's two major aircraft manufacturers.


After beating Boeing in global deliveries in 2003, Airbus is stepping up its sales efforts in China, which is fast becoming the major battleground for the world's two major aircraft manufacturers.

Indeed, China is the one bright spot amid the gloom pervading the world airline industry. Airbus earlier estimated that China would need to buy at least 1,600 new large aircraft of different sizes and capabilities in order to meet projected demand over the next 20 years, making it the second largest market for aircraft after the US.

Though being a latecomer to China, Airbus has so far made rapid inroads into the market. It completed the delivery of 36 aircraft to Chinese airlines, including those in Hong Kong and Macao.

The company has so far delivered a total of 220 aircraft to Chinese airlines.

That number is considerably smaller than Boeing's more than 440 aircraft. But Laurence Barron, president of Airbus China, says that his company is quickly catching up with its US rival.

The fleet of Airbus planes in China has grown more than seven-fold since 1995.

Boeing has been in China much longer than Airbus, says Barron, adding that the firm is "to a certain extent, playing catch-up." "But we do believe that we will come out on top," he says.

Taking up his post on January 1, 2004, Barron says he is happy to be in China at a time when the market is poised to soar even higher. Since its accession to the World Trade Organization (WTO), in December 2001, the pace of market opening in China has speeded up.

This development, in turn, is creating many new opportunities for domestic as well as foreign businesses. The resulting increase in business activities is fuelling a travel boom that is expected to intensify in the coming years.

"We expect 2004 will be a good year for the airline industry in China," Barron says.

"You can get a good indication of the growing demand for air travel at the crowded airports serving major cities in China," he says.

Major Chinese airlines are keen on expanding their fleets in order to meet this rapidly rising demand. They are also stepping up their efforts to improve operating efficiency by replacing old aircraft with more technologically advanced aircraft.

Barron says that he expects "a lot of business" for Airbus will be "driven by the replacement needs" of major Chinese airlines.

"A lot of our current business (in China) is talking to airlines about the replacement of their ageing aircraft," he says.

Replacing an ageing aircraft with a new one is an "easier decision to make" by management because of the savings in operating costs, Barron says.

It is estimated that fuel and maintenance cost savings can be as much as 15 per cent. "That's a lot of money in the long term," he says.

Of course, operating a fleet of relatively newer aircraft can be a big selling point, although pricing remains the dominant factor in China's aviation market. But service and comfort are rapidly becoming important considerations in the minds of the travelling public as the market matures.

Airline industry sources predict that some 850 ageing aircraft operated by various Chinese airlines will be retired in the next four years. There is a strong demand not only for more cost efficient planes, but also for those that can carry more people and fly longer distances, the sources say.

Within the Airbus stable, Barron says he expects a number of models will have a great appeal to Chinese airline operators. Of particular mention is the A319, which is specifically modified to fly to destinations at a high altitude. Outfitted with special equipment, such as a powerful oxygen supply system, the aircraft can fly passengers in relative comfort to such destinations as the Tibetan capital of Lhasa, 3570 metres above sea level.

"The A319 is an attractive aircraft," Barron says. It is "ideally suited" to fly to the many cities in China's mountainous western regions that are now being developed, he says.

For that purpose, the A319 has a "significant" advantage over its competitors, he adds.

The other aircraft in the Airbus line-up that can sell well in China is the A330 and its derivatives. It is a wide-body single-engine type aircraft that is newer in design than the Boeing 767 flown by many Chinese airlines. Barron says that China Southern has agreed to buy four A330s. It is the first mainland Chinese airline to place a firm order for this aircraft. Barron says he expects others will follow because the aircraft offers operators "real economic advantages."

In the long-term, Barron predicts that there will be a growing demand in China for bigger planes that can carry more passengers and cargo and fly longer distances. Based on the projected growth of the Chinese economy, "you don't have to be a rocket scientist to figure out that there is a need for large aircraft to move passengers in those inter-city trunk routes," he says.

To stay competitive, Chinese airline operators will also have to prepare for an explosive growth in international air passenger traffic in and out of the major cities as the economic growth pattern is becoming increasingly global.

What's more, the 2008 Summer Olympics in Beijing, to be followed by the World Expo in Shanghai a year later, will undoubtedly be a boon to China's travel industry. Chinese airlines will need to have the right aircraft capable of moving large numbers of passengers over long distances or risk missing out on the tourism boom.

Airbus, Barron says, has just such an aircraft in the form of the much vaunted A380 that can carry up to 555 passengers, making it the largest civilian aircraft under development. The super-jumbo aircraft is expected to enter into service in 2006.

Barron says that Airbus is talking to all the three big airline groups in China, Air China, China Eastern and China Southern, on the sales of the A380.

"All the (Chinese) airlines we talked to are very interested," he says.

The sweeping consolidation of the Chinese airlines in 2002 into three main groups has sent tremours throughout the industry. But Barron says that the shake-up didn't have too much of an effect on selling aircraft.

Of course, "we have to adapt to the changes," he says. "Instead of talking to many different individual airlines, we are talking mainly to the three groups" and those that are yet to be consolidated, he says.

Airbus has agreed to progressively increase the production of aircraft parts and components in China in order to help foster a closer relationship with the Chinese airline industry.

The company's procurement from China is expected to increase to US$60 million by 2007 from around US$10 million.

Procurement pledges by Airbus, or other foreign companies, are often seen as politicizing to help boost sales to the government-controlled airline groups.

Barron says that it is common in many countries for governments and politicians to take a keen interest in the airline industry.

In the aviation business, "politics is always important not only in China but also in many other countries," Barron says. But at the end of the day, "it all depends on how well you do in satisfying the needs of your customers," he says.

Source: China Daily

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