Airbus is wooing China, hoping that the soon-to-be world's largest aviation market will order some A380s and breathe new life into the ailing programme.
While pressure for a Chinese deal will subside somewhat with Emirates' tentative deal for 36 A380s on 18 January, Airbus's flagship aircraft still has a steep uphill battle on the Mainland.
In exchange for A380 orders, the Chinese industry is likely get some work on the superjumbo, possibly in completions and delivery.
Sources tell FlightGlobal that Airbus's recent approach to China was certainly not the first such proposal. Unfortunately for Toulouse, Beijing wants far more than just completions: it already has this work on both the A320 and A330 programmes.
Instead, China has apparently expressed interest in engine work on the A380, possibly with a plant in the country. Involvement in the Rolls-Royce Trent 900 or Engine Alliance GP7200 are gifts that Airbus simply is not in a position to give.
Aircraft engines are a major priority for China, which is struggling to develop expertise in this crucial area. The country's dependence on Western engines is near total. Western engine manufacturers are, however, zealously protective of their intellectual property. Industry observers have said that Rolls-Royce's decision to set up its second major engine production centre in Singapore was partially due to the city state's IP framework.
ENGINE AMBITIONS
The UK engine maker does have a joint venture under the Aero Engine Corporation of China for manufacturing aero-engine parts, but that does not compare to an assembly or production facility.
Whether such a momentous decision to produce Trent 900s or GP7200s in China would even be considered depends on how the engine makers view their short-term and long-term interests, says Forecast International's senior aircraft/engine analyst Douglas Royce.
"In the short term, making a deal that includes some kind of technical assistance in engine development could mean more engine sales for a Western manufacturer. If you take a long term view, however, helping China advance its commercial engine technology is helping a future competitor," he says.
Even if China were to be satisfied by a non-engine related deal, the backlog of just 95 A380s would make it hard for Airbus to justify the economics of transferring some work to the country.
Airbus recently said that Chinese airlines could need between 60 and 100 A380s over the next five years or so, but FlightGlobal's Flight Fleets Forecast is less optimistic. It forecasts demand for 45 A380 deliveries in China through to 2036 – but this is contingent upon the development of a significantly-improved variant for delivery from 2025. With that looking unlikely, an estimate of demand for only five A380s in China through to 2025 looks more plausible, says Flight Ascend Consultancy's head Rob Morris.
A380'S COMMERCIAL CHALLENGE
At a press conference on 15 January, Airbus acknowledged that while China is aware that the manufacturer is open to industrial co-operation on the A380, the challenge lies in convincing the country's airlines that they can do well commercially with the jet.
"We need to convince the airlines that they can increase their market share and increase tremendously their image by buying the A380 and operating them from big Chinese hubs," says Airbus commercial aircraft president Fabrice Bregier.
He did not talk about how Chinese airlines can drive profitability and yields with the aircraft.
"The airplane has to run at near capacity to be more cost efficient than a smaller twin-engine widebody. That limits the frequencies travellers prefer in a carrier's schedule, and allows the A380's use on relatively few routes," Royce says.
Morris adds that the Chinese long-haul market is also developing with many new connections from secondary Chinese cities to Europe, Australia, North America and Asia, where smaller twin-aisles are ideal for route development.
Today, China only has five A380s in operation with China Southern Airlines. FlightGlobal schedules data shows that the type is deployed from Guangzhou to Beijing, Sydney and Los Angeles.
CHINA SOUTHERN EXPERIENCE
A senior executive at China Southern tells FlightGlobal it is "hard to make money" on all three routes. He says maintenance adds up for the Guangzhou-Beijing service because of the number of take-offs and landings the superjumbo makes on the domestic route, and the A380 is only deployed to Sydney during peak periods. It does not help that the airline only has five of the type, making it an operational challenge each time one has to be pulled out of service.
"The A380 can possibly make money on long-haul routes from Beijing, but we're in Guangzhou which is too close to other hubs like Hong Kong and Singapore, making it too competitive," he says.
Indeed, China Southern's initial plan when ordering the A380 was to use the type on key services out of Beijing to Europe and the US. Beijing-based Air China resisted this, however, and China Southern's A380 plans have also been hurt by regulations that prevent domestic carriers from competing directly on international routes. Its attempts to jointly operate the type with Air China also failed after they could not agree on the conditions.
Morris says Air China would be key to more A380 sales in China, but to date the flag carrier remains unconvinced of the potential offered by the aircraft in terms of both capacity and economics. Given its historic reticence about the type, a volte-face is unlikely.
Should Airbus secure orders of between 10 and 20 A380s from a number of Chinese airlines, this would extend the production line for several years at a rate of six to eight jets a year – but Airbus would still not make money from the programme, Royce says. Thankfully, Emirates will likely offer life-support to the programme, having signed a memorandum of understanding for 20 firm aircraft and options on another 16.
"Airbus needs to get back to building 30-35 aircraft per year to make the programme successful, and demand from China alone won't enable them to do that."
WEIGHING THE COSTS
Indeed, Airbus is counting on Emirates to firm the order, which will provide some much-needed stability to the A380 production line. Chief operating officer John Leahy says the Emirates deal underscores Airbus' commitment to produce the A380 for at least another 10 years. A week ago, the airframer made clear that failure to secure more orders from Emirates would effectively force closure of the programme, and that it was drawing up plans to reduce output to just six aircraft per year if necessary.
Even with Emirates onboard, winning China would no doubt bolster the programme and let Airbus breathe a little easier.
As Bregier, who will step down next month, puts it: "The Chinese market will be the biggest in the world and I believe the biggest market deserves the biggest aircraft."
This, however, is merely what Airbus officials have been saying about the A380's prospects in China since the turn of the century.
The key question is whether it would cost more for Airbus to cease production or to maintain the programme at low volume – and if it is willing to do so by offering the double-deckers to Emirates and Chinese airlines at an enticing price.
"Personally, I think Airbus' incoming management will be far less committed to the programme than the current management," Royce says. "But we'll have to wait and see."
Source: Cirium Dashboard
