Paul Lewis/BEIJING
In the 16 years since China opened its doors to reform, the country has emerged as a major trading partner of the West and is on course to become an economic superpower in the next century. Underlining its emerging importance are the many corporations beating a path to Beijing and setting up shop, among them the world's three principal civil airframe manufacturers.
Over the past 12 months, Airbus Industrie, Boeing and McDonnell Douglas (MDC) have each taken the unprecedented step of appointing individual presidents to China, all of them reporting directly back at the highest level to their corporate headquarters in Toulouse, Seattle and Long Beach, respectively.
The first to take up residence in the Chinese capital, in July 1994, was Peter Chapman of MDC's Douglas Aircraft division, answering directly to company president Robert Hood. His appointment coincided with the relocation of MDC's China office from Hong Kong to Beijing. "This is where the action is," explains Chapman.
Airbus China president Rolf Rue followed in November. Rue was appointed to the position in November 1993 and spent the intervening year establishing a supporting infrastructure in Toulouse, including a direct line to Airbus chief executive Jean Pierson. "Its very important to make sure that, before you disappear, there is machinery in place to enable you to do your job," says Rue.
Arriving in Beijing at around the same time was Michael Zimmerman, Boeing's new China president. Zimmerman, reporting straight to Boeing Commercial Airplane group president Ron Woodward, has responsibility for all of the company's in-country sales, support and industrial activities. "China is extremely important and you can't do business from thousands of miles away," states Zimmerman.
Important as China is today as a market for passenger aircraft - accounting for some 14% of Boeing's annual production alone - the rush to Beijing reflects the widely regarded belief that the country has the potential to become of even greater significance in the future.
Air transport in China grew at an average annual rate of 22% between 1979 and 1993, around 2.3 times faster than the country's expanding gross domestic product. To keep pace with this growth, China has imported $2 billion-worth of Western-produced aircraft every year since the late 1980s.
Total traffic in 1993 reached 5.1 billion tonne-kilometres and this is forecast to rise to 13.5 billion tonne-kilometres by the year 2000. Given existing available seat capacity and projected growth, it is estimated that China will require 500 additional aircraft over the next six years.
"If you look at the number of aircraft over the next ten years, the Chinese market is important," acknowledges Rue, "but, if you look at what could happen in the next 50 years, there is enormous potential here. Development in China is only really starting."
ADAPTING TO CHANGE
Securing as large a slice of this market as possible is the principal objective of Chapman, Rue and Zimmerman. To this end, the three rival manufacturers have each had to review past strategies and bring them into line with China's quickening pace of change and emerging needs.
Boeing was the first to enter the market in 1973 with the delivery of ten Boeing 707-320s to the Civil Aviation Authority of China (CAAC). It has since grabbed the lion's share of orders, with more than 200 737s, 747s, 757s and 767s in service with 15 Chinese carriers to date.
MDC followed in 1983 and has gone on to deliver more than 40 aircraft to China Eastern and China Northern Airlines, the bulk of which have been MD-80s assembled locally by Shanghai Aviation Industrial (SAIC). Challenging for second place is relative newcomer Airbus, with 18 A300-600Rs and A310s [HOW MANY OF EACH?] in service with three airlines and a similar number on order.
Boeing's dominant market position has proved particularly disappointing for MDC, which has transferred more production technology to China - 87 million pages, or 7,000t, of technical data, for example - than any other manufacturer.
"Whereas Boeing developed a very tight relationship with the CAAC, our relationship was with the manufacturing side," says Chapman. "As things began to change and the central authorities weren't able to place aircraft with airlines, it became a disadvantage to us."
In contrast, Boeing is seeking to move in the opposite direction. "We've got to be nimble and, if anything, people have felt we've been focused too much on the airlines," suggest Zimmerman.
Airbus, having not sold any aircraft in China until 1985, has been the least exposed to the break-up of the Ministry of Aero-Space and the regional devolution of the CAAC's power. According to Rue, its approach has been at all levels "...to persuade every party that needs to be reached in a purchasing decision of the merits of our programmes."
This has not always proved possible, however, as in the case of CASC's order for six A340-200s, scheduled for delivery in 1997. The state-owned corporation is still looking for a home for the aircraft, following China Southern's refusal to take the A340 having already ordered six Boeing 777s.
LEVELLING THE FIELD
MDC's change in tack has given it primary responsibility for aircraft marketing, instead of SAIC. Its 1992 TrunkLiner contract has also been amended, allowing for the first 20 aircraft - six additional MD-80s and 14 MD-90-30s - to be supplied directly from its US-based Long Beach factory. Planned SAIC production has been halved accordingly to 20 MD-90s and will not start until 1996.
The change in the TrunkLiner deal works in MDC's favour, contends Chapman. "China doesn't want a monopoly and, if you have Douglas deliver aircraft sooner from Long Beach, it starts to level the playing field and gets competition going. It benefits not only MDC, but also China, by getting a better deal out of Boeing."
Airbus, after a late start, is also looking to break Boeing's hold on the market, particularly in narrowbody aircraft. Rue observes: "It's certainly clear that the Chinese are interested in having a diversified acquisition policy and want to make sure they're not in the hands of any one supplier."
Both Airbus and MDC recognise that they face a difficult uphill battle dislodging Boeing and breaking the "single-brand" mentality of some carriers, such as China Southern. "I wish them well," says Zimmerman, but adds firmly: "We'll continue to work with our customers and try and maintain our market share."
WORKSHARE LEVERAGE
While China is hungry for new aircraft, it also possesses an insatiable appetite for new technology and has not been slow to exploit its strengthening position to push for increasingly large amounts of work from the West.
Boeing in particular has been under pressure to increase its industrial involvement in China. Xian Aircraft (XAC) has been a supplier to Boeing since 1986, starting with 737 access doors and progressing to vertical and horizontal stabilisers. Work was recently expanded to include assembly of the 737's section 48 aft fuselage.
As a next step, Boeing has proposed developing a new 100-seat passenger as an Asian co-operative venture, involving primarily China, Japan and South Korea. "We welcome the opportunity to have as many participants as we can, but we're to dedicated to working with the Chinese," says Zimmerman.
Airbus is also facing pressure to expand its workshare in China, to match that of its competitors, but is limited in the amount of production it can transfer by the multi-national nature of its consortium. Rather than taking the "colonial approach and disposing of old technology and processes to where it's cheaper", says Rue, Airbus is looking for Chinese involvement in new programmes.
The assembly of MD-80s in Shanghai goes back nearly ten years and 35 aircraft have been completed to date . Production of the first of 20 follow-on MD-90-30 TrunkLiners will begin in 1996 and local airframe content is planned to jump to 70%.
"We're in the business of making money for our shareholders," states Chapman. "If we have to put jobs and technology in other countries, then we go ahead and do it."
Despite MDC having already signed up other Asian risk-sharing partners in South Korea and Japan, to launch the 100-seat MD-95, Chapman claims that there is still Chinese interest in building the aircraft. "They're pushing us a little and we're being encouraged to have talks with them," he says.
INFRASTRUCTURAL INITIATIVES
China has paid a high price for its spectacular growth in air transport, not least of which is an air-safety record which ranks among the worst in the world. The Government called a short-term halt in July to the purchase of any more aircraft, to allow infrastructural development and training to catch up.
All three manufactures have in turn responded with multi-million-dollar initiatives designed to enhance airline support and improve pilot and technical-staff training.
"We've to play our part," states Rue, "starting with the development of human resources. Developing a pool of expertise in this country is probably the most important task in front of the Chinese at the moment."
Airbus signed an agreement in November with CASC, to establish a $25 million training and support centre at Beijing Capital Airport. The 40,000m2 (430,500ft2) site, scheduled to open in early 1996, will house two flight simulators, spare parts and support for component repairs.
Rue explains: "We'll be using the centre to assist the airlines to develop their own capabilities. There is no question of what we're doing centrally being an alternative to development with individual airlines - it's complementary."
Boeing announced in August its own $100 million China-development package, which has included the transfer of two company 737 simulators to China's Civil Aviation Flying Centre in Chengdu and the opening of a new spares-service centre, stocking more than 16,000 parts.
The company plans , in addition, to build a new combined headquarters and training centre, equipped with simulators, in Beijing. Says Zimmerman: "We're spending a lot of time and money working in all areas of maintenance, training and safety. We're also taking the unusual step of working with new carriers, to make sure they get off the ground right."
MDC's training proposal centres on a joint-venture simulator, involving the airlines and, possibly, a third-party training company. Negotiations have not yet been concluded, but it is likely to feature phased assistance leading towards eventual Chinese self-sufficiency.
"Our goal is to assist them," says Chapman, "it's not a core business, but anything that we can do facilitates the sale of aircraft."
Source: Flight International
