Midair Battle

By+Deng+Yaqing

Much like Chinese President Xi Jinpings visit to the United States irrevocably changed Sino-U.S. relations， the world of aircraft manufacturing has also undergone a major change.

At the U.S.-China Aviation Cooperation Programs signing ceremony held in Seattle in September， Chinas National Development and Reform Commission and the Boeing Co. reached a consensus regarding their strategic partnership. Boeing and Commercial Aircraft Corp. of China， Ltd. agreed to establish a Boeing 737 aircraft completion and delivery center in China， and Boeing and Aviation Industry Corp. of China signed an agreement to expand parts production of the Boeing 747-8 aircraft undertaken by the latter. In return， China placed an order for 300 Boeing airplanes worth $38 billion in catalog price.

The prospective 737 aircraft completion and delivery center would be the first facility of its kind outside the United States for the Chicago-based Boeing， which long confined its production to the Washington state facilities before deciding to set up a 787 assembling factory in South Carolina in recent years. The move will make related Chinese partners its first-tier suppliers and undoubtedly elevate the status of Chinas civil aviation industrial chain in the global market.

The bulk order placed by China includes 240 airplanes for Chinese airlines comprised of 190 Boeing 737 planes and 50 wide-body aircraft. The order also stipulates that another 60 Boeing 737 aircraft will be designated for leasing companies.

While China will benefit from the center in terms of employment， tax revenue and technological progress， Boeing will witness its production capacity and orders for its 737 series soaring， said Li Xiaojin， a professor from the Tianjin-based Civil Aviation University of China.

Li noted that China is the biggest consumer of the Boeing 737 series， and most of the airplanes ordered by Chinese airlines fall under that category. For example， of the 155 airplanes Boeing delivered to China in 2014， 119 are 737 series airplanes. As of the end of August 2015， Boeing had delivered 73 737 airplanes in 2015 alone， accounting for 23 percent of the companys total delivery. With the development of lowcost civil aviation in China， Boeing will see the demand for 737 series further expanding. In this sense， the 737 aircraft completion and delivery center is not only conducive to building rapport with the Chinese Government but also bridging its distance with the largest customer base.

Taking wing

With 52 air transportation companies and 202 certified airports， Chinas civil aviation industry has become the second largest air transportation system in the world， said Li Jiaxiang， head of the Civil Aviation Administration of China （CAAC）.

Now， Chinese airlines have opened 553 international routes connecting 127 cities in 51 countries， and 114 foreign airlines from 57 countries have launched international routes leading to 48 cities in China. In total， these routes cover five continents across the globe.

Beyond that， a total of 193 large and medium-sized civil aviation projects will gain a push forward in 2015， with a total investment of 500 billion yuan （$78.6 billion）， and of them， 51 projects will directly serve the Silk Road Economic Belt and 21st Century Maritime Silk Road Initiative （Belt and Road Initiative）， according to the CAAC. At the current rate， China will become the worlds biggest air passenger market by 2034， with one in five passengers traveling to， from or within the country. The number of air passengers traveling to， from and within China is set to nearly triple by 2034 to roughly 1.3 billion， surpassing an expected 1.2 billion for the United States， according to a statement by the International Air Transport Association in April.

“China is a critical international market for commercial airplanes，” said Boeing Commercial Airplanes President Raymond Conner. However， in this emerging land of opportunity， Blagnacbased Airbus Group SE， another prominent civil aircraft manufacturer， has a leg up on Boeing in the Chinese market.

As early as 2006， Airbus had its final assembly line for single-channel airplanes in Tianjin. Since then， the number of Airbus-labeled airplanes in service has soared from 260 to more than 1，100 in China， claiming market shares from Boeing in its stead. Now， it has closed the gap with Boeing and seized nearly half of Chinas civil aviation aircraft market. “In China， Airbus has managed to shift from a challenger to a leader，” said Chen Juming， President and CEO of Airbus China.

The marketization of Chinas civil aviation sector as well as the Belt and Road Initiative has fueled the surge of airplane orders， said Chen. Since 2012， the CAAC has intensified the opening up of civil aviation operation to private capital by approving several private airlines， such as Qingdao Airlines， Ruili Airlines and Donghai Airlines. The Airbus-manufactured A320 series of airplanes can well suit the development of low-cost airlines in the start up phase.

Before its Tianjin Assembly Factory was put into operation， Airbus once sold 500 airplanes within 25 years. By locating its first assembly line outside Europe in Tianjin， the giant aircraft manufacturer managed to sell another 500 airplanes in merely five years. Since beginning operations in 2008， the Tianjin-based A320 final assembly line has produced 237 airplanes.

However， Airbus wont settle for the suc-cess of the A320 final assembly line. In July， Airbus signed an agreement with its Chinese partners—the Aviation Industry Corp. of China and the Tianjin Free Trade Zone—for the establishment of the A330 aircraft completion and delivery center. In recent years， orders from civil aviation operators indicate that larger and longer single-channel airplanes with more seats are better received by customers， and the strong profitability of the A330 series would contribute more to Airbuss performance.

Riding the tailwind

Once Boeings 737 aircraft completion and delivery center is put into operation in China， the production capacity of the 737 series will improve significantly， allowing it to compete with the A320 series face to face.

The Tianjin project will be built into a key development base for Airbus in Asia， said Chen， who shows little anxiety over Boeings new move， and believes the competition between Boeing and Airbus in China will turn out to be a long-term relationship that benefits the development of both airplane manufacturers as well as the Chinese market.

As a matter of fact， Chinese companies have become part of most links of airplane production， including raw material supply， parts and components manufacturing， design， assembly and delivery， said Chen.

As Airbus Chinas Chief Operating Officer Rafael Gonzalez-Ripoll once suggested when initiating negotiation to build the Tianjin Assembly Line in 2005， Airbus purchased parts and components worth $34.5 million in China， which leapt past $490 million in 2014 after joining with Chinese partners. The figure is expected to hit $1 billion in 2020.

“As the global aircraft industry gradually expands toward the east， China should grasp the opportunity to improve its own civil aviation industrial chain，” said Li， noting that both Boeing and Airbus have shown interest in transferring the production of low-end airplanes to other countries.

In the process， the technological strength and output of Chinas aircraft industry will improve， and its industrial chain will be completed. In addition， the two players will generate a catfish effect， ultimately propelling the development of the Chinese market， said Li.

At the same time， continued progress has been made in the domestically manufactured Comac C919 airplane. More than 50 airlines—both domestic and foreign—have placed orders for the aircraft. Its hat thrown into the ring， the C919 model will hopefully escalate competition and challenge Airbuss A320 series and Boeings line of 737 planes.