Halibut
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Airbus's Self-inflicted Wound Over China Plant?

Sat Apr 15, 2006 11:19 pm

Western aviation companies in China have not turned out so well in the past . We'll see if Airbus can pull it off .

Halibut


http://www.businessweek.com/globalbi...tent/apr2006/gb20060413_842097.htm

APRIL 13, 2006

Aerospace
By Carol Matlack, Stanley Holmes and Frederik Balfour


Airbus May Hit An Air Pocket Over China
Why its plan to build narrowbody planes there could come up short
Carol Matlack, Stanley Holmes and Frederik Balfour



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Reader Comments

Well, maybe not. Airbus isn't likely to save money building planes in China. Wings, fuselages, and other components would still be made at Airbus' European factories and shipped to China for assembly. The expense of transporting them and setting up a complex supply chain, along with recruiting and training Chinese workers, would wipe out labor cost savings, analysts say. Airbus executives, citing the sensitivity of ongoing negotiations, declined comment. But a spokesman acknowledges that Airbus' main reason for the plant is to gain greater access to the Chinese market.
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Stitch
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sat Apr 15, 2006 11:40 pm

Quote:
But a spokesman acknowledges that Airbus' main reason for the plant is to gain greater access to the Chinese market.

And that seems to be the key. Also, the A320 family is a significant improvement, I imagine, over the MD-8X of the old joint venture.

I think what Airbus has to worry about is that if China can produce A320s for their own internal market, that may keep them from ordering A320RS'. While the A320RS will be the superior plane, the A320 can meet China's needs and has the extra cachet of being "assembled in China".

Airbus will still record each sale of an A320C, of course. But as Chinese airlines that operate the 737NG start replacing them with Y1's, those airlines will have an advantage in efficiency, performance, and technology over the A320C, just as the A320 had over the 734/735.

Of course, China might just decide to order A320Cs exclusively, and maintain parity with Boeing via dollar value, which means China may never see a Boeing Y1, but they will see slews of Y2s and Y3s at the expense of the A350 and A380, plus whatever Airbus decides to fight Y3 with.
 
RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sat Apr 15, 2006 11:47 pm

So carting 787 parts all over the world is a winner, while carting A320 parts over the world is a loser. With the A320 selling fantastically at the moment and with a huge backlog, can someone explain the arguement here?
 
Halibut
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sat Apr 15, 2006 11:51 pm

I found this interesting :

A Chinese factory, though, could exacerbate an Airbus problem: an overreliance on lower-margin narrowbody sales while Boeing wins more orders for widebodies. Because 85% of the 1,055 orders logged by Airbus last year were for narrowbodies, its order book was worth $10 billion less than Boeing's, although Boeing sold 53 fewer planes.

Halibut
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RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sat Apr 15, 2006 11:59 pm

Quoting Halibut (Reply 3):
A Chinese factory, though, could exacerbate an Airbus problem: an overreliance on lower-margin narrowbody sales while Boeing wins more orders for widebodies. Because 85% of the 1,055 orders logged by Airbus last year were for narrowbodies, its order book was worth $10 billion less than Boeing's, although Boeing sold 53 fewer planes.

Yes, theres no doubting that Airbus sold predominently widebody aircraft last year, but that hardly denotes a problem. It simply gives Airbus a reliable product line while they sort out their widebody sales, theres no way that can be deemed as an 'overreliance', its what people are buying from Airbus at the moment.

Airbus is still very profitable, even if their widebody line is in disarray at the moment - Boeing was in a similiar position prior to the 777 launch.
 
jacobin777
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:02 am

Quoting RichardPrice (Reply 2):
So carting 787 parts all over the world is a winner, while carting A320 parts over the world is a loser. With the A320 selling fantastically at the moment and with a huge backlog, can someone explain the arguement here?

I think it has more to do with the fact the A320's are low margin planes, so by the time all the expense such as transportation, etc are done, it really doesn't make too much money..

I think it was a good decision by Airbus....if anything, it will open new markets...
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Stitch
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:02 am

Quoting RichardPrice (Reply 2):
So carting 787 parts all over the world is a winner, while carting A320 parts over the world is a loser. With the A320 selling fantastically at the moment and with a huge backlog, can someone explain the arguement here?

While the 787 would be cheaper to assemble if all the parts were right next to the Everett factory, I am guessing that Carol Matlack believes that building a new assembly plant is far more expensive then utilizing an existing one.

I am guessing that if Boeing had chosen to build the 787 in, say, Dallas, and had to build an assembly plant for it, then many would be saying the production costs of the 787 could possibly be so high as to affect sales/profitability of the line.
 
dl021
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:03 am

Quoting RichardPrice (Reply 2):
So carting 787 parts all over the world is a winner, while carting A320 parts over the world is a loser. With the A320 selling fantastically at the moment and with a huge backlog, can someone explain the arguement here?

Well, the issue is whether it's necessary or are they looking to build a factory that will only sell to China and are they spending the money unnecessarily.
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RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:05 am

Quoting Jacobin777 (Reply 5):
I think it has more to do with the fact the A320's are low margin planes, so by the time all the expense such as transportation, etc are done, it really doesn't make too much money..

Maybe not, but it does mean they can offer better delivery slots. With 900 odd A320s sold last year, the backlog has got to be becoming a potential liability sales wise because its filling up delivery slots from now until the millenium, so a second factory would enable the sales team to be more flexable.

Heres something to think about - would buyers get the option to decide which factory they want their A320s to come from?
 
Danny
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:06 am

Quoting Jacobin777 (Reply 5):
I think it has more to do with the fact the A320's are low margin planes, so by the time all the expense such as transportation, etc are done, it really doesn't make too much money..

So what does make money at Airbus? According to you and other boeing chour members nothing. According to EADS financial statements profits are growing quickly - mainly thanks to Airbus.

http://www.eads.com/web/lang/en/1024.../OF00000000400004/8/99/513998.html
 
RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:10 am

Quoting DL021 (Reply 7):
Well, the issue is whether it's necessary or are they looking to build a factory that will only sell to China

When was it limited to only Chinese buyers? As far as Ive read to date, it was just going to be another A320 line, delivering to everyone but proposed inorder to win the 150 plane deal.

(Yes, Im bored today, which is why Im posting a lot in this thread  Smile )
 
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N328KF
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:12 am

Quoting Stitch (Reply 6):
I am guessing that if Boeing had chosen to build the 787 in, say, Dallas, and had to build an assembly plant for it, then many would be saying the production costs of the 787 could possibly be so high as to affect sales/profitability of the line.

I dunno if I agree with this. According to this article from last year, the only part of notable size built in the Puget Sound area is the fin. Since you're moving everything else around anyhow, why not do it somewhere else? In fact, Vought produces part of the fuselage in Dallas, so that would be a potential cost-savings right there.

Boeing 787: Parts from around world will be swiftly integrated.

[Edited 2006-04-15 17:13:34]
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jacobin777
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:26 am

Quoting RichardPrice (Reply 8):
Maybe not, but it does mean they can offer better delivery slots. With 900 odd A320s sold last year, the backlog has got to be becoming a potential liability sales wise because its filling up delivery slots from now until the millenium, so a second factory would enable the sales team to be more flexable.

I never said it was a bad move by Airbus... Wink

Quoting Jacobin777 (Reply 5):
I think it was a good decision by Airbus..



Quoting Danny (Reply 9):

So what does make money at Airbus? According to you and other boeing chour members nothing. According to EADS financial statements profits are growing quickly - mainly thanks to Airbus.

I didn't say they were losing money.......so please don't put words in my mouth sir.........

until the numbers come out after the china starts pumping out parts, we won't know how it will affect their margins....

not to mention, those are old numbers now..when their heavies were selling like hot pancakes.....it will be interesting to see how the slowdown of their quads affects their earnings in the future...

its nice to know they have a nice backlog of heavies however.....
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Danny
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:33 am

Judging by huge number of companies outsourcing to China, the cheap labour outwieights by far extra transportation cost.
 
A319XFW
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:40 am

Quoting RichardPrice (Reply 8):
Heres something to think about - would buyers get the option to decide which factory they want their A320s to come from?

The aircraft manufactured there are going to be A319's and A320's. It has been said that the 4 a month won't even be enough for the current Chinese backlog, so I'm guessing the aircraft built there will be going to Chinese customers.
But the quality of the product has got to be such, that it can be sold anywhere.
 
BoomBoom
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:43 am

Richard A. has written more on this subject back in December:

Quote:
A lot of bad things happened to Airbus this year. The A380 delays, the A350’s slow start, and worst of all, the A340’s downward spiral. But this is the time of year for giving thanks. It’s important for everyone to remember the good things and be grateful. Airbus should be thankful they avoided the greatest disaster of all: a production line in China.

http://www.richardaboulafia.com/shownote.asp?id=207
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OldAeroGuy
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:49 am

Quoting Danny (Reply 13):
Judging by huge number of companies outsourcing to China, the cheap labour outwieights by far extra transportation cost.

But this reverses the expensive vs cheap labor argument.

The major components that require the most labor are still being made in an expensive labor market ie Europe. The least labor part, final assembly, is being done in the cheap labor market.

The China line is more about being in China than taking advantage of China labor rates.
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Ruscoe
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 12:04 pm

The crazy thing to me is that Airbus does not need to build this plant in China to sell craft in China.

They sell at least 50/50 with Boeing now on narrowbodies, and the Chinese are anything but fools. If Airbus widebodies are not suitable for China, then they won't buy them, plant or not.

As I have mentioned before, this deal is good for neither party, especially Airbus, and I will be very surprised if it goes ahead. If anybody is trying to get out of it, it it must be Airbus. It was yet another silly decision by a management team not working well to-gether, or with the political forces at work.

Ruscoe
 
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 10:26 pm

Quoting RichardPrice (Reply 2):
So carting 787 parts all over the world is a winner, while carting A320 parts over the world is a loser.

Typical A vs B flame bait. Who said anything about the wisdom of the 787 strategy?
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RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Sun Apr 16, 2006 11:03 pm

Quoting Revelation (Reply 18):
Typical A vs B flame bait. Who said anything about the wisdom of the 787 strategy?

It wasnt intended as flamebait, it was a valid question - why do previous posters opinionate that its wrong to cart preconstructed pieces of an A320 around the globe for final construction when Boeing is doing exactly the same for the 787 production line and the Boeing method is heralded as revolutionary? I could have used Airbus and its current production method, but the Boeing 787 plan has the countries spread as much out as they would be in the A320 case, while the current Airbus situation has all the individual major lines within about a thousand miles of each other. Its a valid comparison.

You really need to stop seeing stuff in a 'Airbus v Boeing' competative manner, sometimes you can use both in the same sentence without intending anything.
 
BoomBoom
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 12:58 am

Quoting RichardPrice (Reply 19):
it was a valid question - why do previous posters opinionate that its wrong to cart preconstructed pieces of an A320 around the globe for final construction when Boeing is doing exactly the same for the 787 production line and the Boeing method is heralded as revolutionary?

Exactly the same? How do you know? The devil is in the details.

Do you know all the details? I doubt it.
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 1:01 am

Quoting RichardPrice (Reply 19):
It wasnt intended as flamebait, it was a valid question - why do previous posters opinionate that its wrong to cart preconstructed pieces of an A320 around the globe for final construction when Boeing is doing exactly the same for the 787 production line and the Boeing method is heralded as revolutionary?

I think the key is to look at each company's reasons for doing so. EADS/Airbus does this mostly for political reasons. Airbus was formed to a large degree out of politics, and must take into account distributing workshare between partner nations in a "fair" manner.

Boeing has taken this step with the 787 for different reasons — to get the lowest possible production costs without sacrificing quality.
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RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 1:06 am

Quoting BoomBoom (Reply 20):
Exactly the same? How do you know? The devil is in the details.

Parts made all over the world in different countries and transported to a final assembly plant by massive aircraft, rail, road and boat - sounds pretty damn similiar enough to make a comparison on a forum thread.

Dont make my comments into what they are not.

Quoting BoomBoom (Reply 20):
Do you know all the details? I doubt it.

Didnt stop this thread did it, when nothing is known about the plant.
 
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scbriml
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 1:08 am

Quoting BoomBoom (Reply 20):
Exactly the same? How do you know? The devil is in the details.

All he's saying, correctly I should add, is that some here criticise Airbus for wanting to assemble A320s in China after flying all the major pieces there, while claiming Boeing doing the same thing for the 787 is a revolutionary master stroke.

Or are you disputing that Boeing is flying major 787 components all around the World for final assembly in the US? confused 
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RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 1:28 am

Quoting N328KF (Reply 21):
EADS/Airbus does this mostly for political reasons.

The A320 line has a substantial backlog at the moment, and its still got a decade of sales to go, so a second line would be a positive step even if its only going to produce one demographics aircraft.

If it solves some politics in the process, why not do it? Airbus wont produce aircraft at a loss no matter.

And some of the placements in Boeings 787 world parts tour was made with politics in mind, both companies play the same board game.
 
JayinKitsap
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 1:35 am

For a product sold internationally, having production throughout the world makes sense. Many buyers have pressure to buy domestically, if 5% of the plane is made in the buying country, it sells easier than one built 100% in Europe or US. How often do offsets come up - at least the majority of deals: Qantas, AI, Japan, the Spanish airlines, about the only area where it doesn't come up is the Middle East, but they want distribution and support centers established. It is a bigger deal on military planes, but still important in commercial planes.

One point to consider, if Airbus expands in Europe they are locked into employing those workers for a long, long time. If it expands in Asia, besides for the market angle noted above they would be able to reduce the capacity say 10 years down the road if demand drops.

I think both A & B, just like the car companies are both on the trend to produce on several continents. In B's case, having the 2nd line away from the IAM where production could continue in a strike is quite alluring.

There is a lot to be said about a distributed mfg process. If in all the same place an earthquake or other natural disaster puts your business 100% out. If all the same place, the pool of workers gets distorted, in boom times in your industry no added workers are available, in down times the "Will the last one out turn off the lights" problems surface.

There are big risks for A in doing the China line, but there are possible big rewards. I am sure A has done its risk analysis.
 
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N328KF
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 1:36 am

Quoting RichardPrice (Reply 24):
The A320 line has a substantial backlog at the moment, and its still got a decade of sales to go, so a second line would be a positive step even if its only going to produce one demographics aircraft.

Well, I was not addressing the issue of a second line specifically...just that of widely disparate production plants.

Quoting RichardPrice (Reply 24):
And some of the placements in Boeings 787 world parts tour was made with politics in mind, both companies play the same board game.

Indeed, but not to the same degree. Nobody was telling Boeing that "32.5% of Boeing workshare must come from Japan because they own that percentage of the company."
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt
 
dl021
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 2:45 am

Quoting RichardPrice (Reply 10):
Quoting DL021 (Reply 7):
Well, the issue is whether it's necessary or are they looking to build a factory that will only sell to China

When was it limited to only Chinese buyers? As far as Ive read to date, it was just going to be another A320 line, delivering to everyone but proposed inorder to win the 150 plane deal.

Does it make economic sense to build a factory in China rather than simply another line in Toulouse where the supply chain is in place and they simply need to ramp up production. Also, with the current marketplace, does it make sense to start another line for only a few hundred airframes, when the rest will always be built in France?
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BoomBoom
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 3:27 am

Quoting RichardPrice (Reply 22):
sounds pretty damn similiar enough to make a comparison on a forum thread.

First you said it was "exactly the same" now it's "pretty damn similar". Seems like you're in back peddling mode here.
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RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 3:44 am

Quoting BoomBoom (Reply 28):
First you said it was "exactly the same" now it's "pretty damn similar". Seems like you're in back peddling mode here.

Not backpedalling at all, you simply need to stop taking yourself and forum threads so seriously. You also need to learn the subtleties of sarcasm.
 
BoomBoom
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 4:04 am

Quoting RichardPrice (Reply 29):
Not backpedalling at all, you simply need to stop taking yourself and forum threads so seriously.

All you've shown is that no one should take you seriously.
Our eyes are open, our eyes are open--wide, wide, wide...
 
RichardPrice
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RE: Airbus's Self-inflicted Wound Over China Plant?

Mon Apr 17, 2006 4:07 am

Quoting BoomBoom (Reply 30):
All you've shown is that no one should take you seriously.

You arent worth it, you really arent.

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