Friday, April 21, 2006

From the Silicon Hutong Blog: The Real Deal on Airbus in China

I've been reading a most interesting blog lately that is called Silicon Hutong, written by a guy named David Wolf.

It is one of the best sources of interesting reading on affairs of business in the People's Republic of China that I've seen. Although it focuses primarily on the information technology trade, the author writes on the subject of aviation, and when he does it's trenchant, witty and incisive. The writer is an Original Thinker who does not Run With The Pack.

Anyway, he's got an article from March 20, 2006 entitled "The Airbus Gambit, or The Beginning of the End of Civil Aviation As We Know It." It's an answer to a question that a lot of people have been struggling with, and that is "Why in the hell does Airbus want to build a plant in China to make airplanes when they've already got plenty of productive capacity in Europe?"

In short, the folks from the Toulouse Crackhouse have decided that they're going to plunk down a factory in one of four cities in China and start cranking out the A320. David asks the question we're all dying to know the answer to, and that is "Why?!"

He takes five general reasons why someone might be convinced to invest a large amount of dough in China and Chinese markets and quickly discards 1) customer pull (airlines already like the European product) 2) attractive market (they've already got a good market presence) 3) competitive threat (the market's already sliced up between Airbus and Boeing) and 4) competitive economies (the Chinese plant will never be as efficient as the ones in Europe, given the folded in cost of schlepping parts to China and paying for expat engineers to live it up on TDY, and the large costs involved in training).

So there's stakeholder push or policymaker pull as the driving factor. It means that if the economics of the project don't pencil out, there's someone at company HQ who thinks it is a good thing to do, or there's someone in government who wants it to happen for reasons of national pride-in this case, so that the French can give the finger to zees dev'lish Americains.

David states that it is entirely possible that the Chinese government could pass a law favoring local content and thus Airbus might have an edge in the domestic Chinese market. Because China has failed to develop an indigenous commercial airliner manufacturing capacity, and because this is something China wants to do, China will invite the foreigners in, learn their trade, and take it from them. He points to computers and automobiles and warns that it will happen if the plan goes through.

Then, David poses this question, which deserves its own line:

If this is such a great deal, why isn't Boeing interested? What do they know that Airbus doesn't?

It's a question worth asking. Particularly when we consider that the A380 is six months behind, overweight and payload limited as we detailed earlier in this blog (something nobody seems willing to discuss openly) and that people who know the commercial aviation business are saying that the A350 is the wrong plane, there should be a lot more people asking questions in Toulouse than there are. It's just too damned important.


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