Monday, May 12, 2008 2:47:22 PM
Despite the mainland's spotty record of building jumbo jets, a new company has been launched to reduce Chinese reliance on Western planes
by Chi-Chu Tschang
Asia
At the Beijing airport. China's government hopes its new company to manufacture jumbo jets will reduce the country's reliance on Airbus and Boeing. LIU JIN/AFP/Getty Images
China hasn't had a good track record building jumbo jets. The first Made-in-China jumbo was the Shanghai Y-10, which had its maiden flight on Sept. 26, 1980. The 150-seat jet was as big as a Boeing 707 and bore a striking similarity to the American plane. The Y-10 flew 130 times, but the Chinese retired it in 1985 because local airlines refused to purchase it, preferring to buy the more fuel-efficient planes from Boeing (BA) and McDonnell Douglas instead.
Two decades later, the Chinese government is hoping for better luck. At a ceremony in Shanghai on May 11, China unveiled its latest attempt to build a jumbo jet—or literally "big airplane" in Mandarin—with the launch of the Commercial Aircraft Corp. of China (CACC). The company's mandate: build jumbo jets to reduce the nation's reliance on Western-made planes. There's no shortage of demand. The aviation industry conservatively predicts the country will buy 2,800 new airplanes worth $329 billion over the next 20 years to keep up with China's scorching air travel growth (BusinessWeek.com, 12/6/05). "Obviously, China wants to be part of this perceived profitable airplane making business," says Martin Lin, head of the American Chamber of Commerce in China's aerospace group. "But profits will come only when China will be able successfully to capture international markets."
As the country's failure with the Y-10 shows, that is a big "if." Alarmists say that China entering the ring to manufacture jumbo jets could pose a threat to the Boeing and Airbus duopoly down the road (BusinessWeek.com, 3/22/07). Publicly, Boeing and Airbus have sought to downplay any friction, saying they are willing to work together with China to help build its jumbo jet. "Boeing recognizes and respects the ambitions of other countries and companies to enter commercial aerospace as large airplane manufacturers," a Boeing spokeswoman wrote in an e-mail. "Boeing will continue its legacy of cooperation with customers and suppliers worldwide."
Fuel and Maintenance are Key
Industry experts say that fears about China quickly eating Boeing and Airbus' lunch are overblown. For starters, no one knows when the country's jumbo jet will be ready. The government has set a goal of having a plane that can seat more than 150 passengers, which is smaller than the jumbo jets made by Boeing and Airbus that seat more than 400 passengers, ready by 2020. But in interviews with the Chinese media, CACC President Jin Zhuanglong declined to be tied to a timetable. China's attempt to build a regional commercial aircraft, the ARJ21, has been delayed because suppliers have not had key systems ready in time. The 70- to 90-seat ARJ21 jet is expected to be delivered next year. To be fair, even Airbus and Boeing's new airplanes have also been wracked by delays (BusinessWeek, 4/17/08).
Another big problem: When it comes to building jumbo jets, China's low-cost workforce is not all that significant an advantage. True, the country has lower labor costs than, say, Toulouse, France, which is why Airbus is setting up its A320 assembly line in the northeastern Chinese city of Tianjin. But airlines do not buy airplanes based on cost alone. The price tag of an aircraft accounts for only 3% to 5% of the plane's total operating cost over its 20-year lifetime. More important considerations for airlines are fuel and maintenance costs. "Building an aircraft is not even half the battle. Delivering it and supporting it over a lifetime is what really matters," says Martin Craigs, president of Aerospace Forum Asia, a Hong-Kong-based nonprofit aerospace supply chain industry association.
And while CACC is going to design primarily for domestic airlines, there is no guarantee that Chinese carriers will purchase the planes if they are not genuinely globally competitive. In the 1990s, McDonnell Douglas had a difficult time selling the MD80 and MD90 series aircraft it assembled in Shanghai to Chinese airlines because the planes cost more than what airlines could buy directly from the U.S. Today, most of China's biggest airlines are listed in Shanghai, Hong Kong, and New York, meaning they will be even more likely to base their airplane purchase decision on earning the best possible returns for their shareholders.
Learning from Failure
To be sure, China's aircraft manufacturers have learned from their past failures. CACC's design teams have already reached out to Chinese airlines to solicit their opinions on the jumbo jets' requirements and performance. But they have not included foreign airlines in the initial round of discussions. "Based on our own experience, we have learned that developing a good plane is not necessarily the most difficult," an Airbus spokesman wrote in an e-mail. "What is most difficult is to get the recognition on the world market not only to develop such a plane but also to deliver and maintain it. This is where collaboration can be helpful."
Tschang is a correspondent in BusinessWeek's Beijing bureau.
China May 12, 2008, 7:07AM EST
Recent BA News
- Tesla’s April Sales Down 18% in China, Amazon’s Multi-Billion Dollar Cloud Expansion in Singapore, and More News • IH Market News • 05/07/2024 11:44:00 AM
- Perficient Stock Soars 52.9% Post-Acquisition; Luminar Declines 10% Amid Workforce Cutbacks, and Other News • IH Market News • 05/06/2024 12:09:00 PM
- Boeing Announces Closing of Senior Notes Offering • PR Newswire (US) • 05/01/2024 11:15:00 PM
- Millennium Space Systems Awarded $414M Space Development Agency Contract • PR Newswire (US) • 04/30/2024 05:50:00 PM
- Alphabet CEO’s Billion-Dollar Wealth, Microsoft’s $1.7B Indonesia Investment, and More News • IH Market News • 04/30/2024 11:58:40 AM
- Philips Stocks Soar 47% Following US Deal, Tesla Bolsters Presence in China, and More News • IH Market News • 04/29/2024 11:11:24 AM
- Anglo American Rejects BHP Group’s Offer, Toyota Invests $1.4 Billion in Indiana, and More News • IH Market News • 04/26/2024 11:48:07 AM
- Boeing collabore avec le Saskatchewan Indian Institute of Technologies pour renforcer l'enseignement aux Autochtones • PR Newswire (Canada) • 04/24/2024 04:00:00 PM
- Boeing partners with Saskatchewan Indian Institute of Technologies to elevate Indigenous education • PR Newswire (Canada) • 04/24/2024 04:00:00 PM
- Upbeat Earnings News May Lead To Extended Rebound On Wall Street • IH Market News • 04/24/2024 01:09:05 PM
- U.S. Futures Display Mixed Results Amid Earnings, WTI and Brent Crude Prices Dip in June Futures Trading • IH Market News • 04/24/2024 11:31:20 AM
- Boeing Reports First Quarter Results • PR Newswire (US) • 04/24/2024 11:30:00 AM
- Coca-Cola and Microsoft Sign Billion-Dollar Agreement, Apple Event Set for May 7, and More News • IH Market News • 04/24/2024 11:28:02 AM
- Futures Pointing To Extended Rebound On Wall Street • IH Market News • 04/23/2024 01:11:27 PM
- Apple Loses Market Share in China, GM Surges in Pre-Market Following Upward Revisions for 2024 Projections, and More News • IH Market News • 04/23/2024 11:25:34 AM
- U.S. Stocks Close On Bright Note Despite Coming Off Day’s Highs • IH Market News • 04/22/2024 08:38:04 PM
- Nasdaq, S&P 500 Extend Losing Streaks On Tech Weakness But Dow Advances • IH Market News • 04/19/2024 08:32:14 PM
- Apple to Invest $250 Million in Singapore Expansion, Oracle Commits $8 Billion to Japan Infrastructure, and More News • IH Market News • 04/18/2024 11:11:52 AM
- United Shares Surge 5.3% in Q1 2024 Earnings Beat; Take-Two Cuts 5% of Workforce, and More News • IH Market News • 04/17/2024 10:57:39 AM
- Boeing Makes its Largest Purchase of Blended Sustainable Aviation Fuel • PR Newswire (US) • 04/16/2024 02:00:00 PM
- Ericsson Soars with 66% Net Profit Growth; Live Nation Under Antitrust Scrutiny in US, and More News • IH Market News • 04/16/2024 11:18:19 AM
- Samsung Surpasses Apple in Q1 Smartphone Market; Salesforce in Talks to Acquire Informatica, and More News • IH Market News • 04/15/2024 11:06:48 AM
- Paramount Global Board Shrinks, Morgan Stanley Faces Regulatory Probe, and More News • IH Market News • 04/12/2024 11:05:29 AM
- Delta Generates US$37 Million Profit in Q1, Google and Intel Unveil Cutting-Edge AI Chips, and More News • IH Market News • 04/10/2024 11:13:48 AM
- Boeing Announces First-Quarter Deliveries • PR Newswire (US) • 04/09/2024 03:00:00 PM
FEATURED Cannabix Technologies Launches New Compact Breath Logix Workplace Series and Prepares for Delivery to South Africa • May 7, 2024 8:51 AM
Moon Equity Holdings, Corp. Announces Acquisition of Wikolo, Inc. • MONI • May 7, 2024 9:48 AM
NanoViricides Reports that the Phase I NV-387 Clinical Trial is Completed Successfully and Data Lock is Expected Soon • NNVC • May 2, 2024 10:07 AM
ILUS Files Form 10-K and Provides Shareholder Update • ILUS • May 2, 2024 8:52 AM
Avant Technologies Names New CEO Following Acquisition of Healthcare Technology and Data Integration Firm • AVAI • May 2, 2024 8:00 AM
Bantec Engaged in a Letter of Intent to Acquire a Small New Jersey Based Manufacturing Company • BANT • May 1, 2024 10:00 AM