With eye on a key market, Airbus negotiatesextension of final assembly line in China
Despite mishaps experienced by other manufacturers in China, the final assembly line in Tianjin has been operating as planned. With four more years to go until the end of the first production contract and the on the horizon, talks about a longer-term commitment have begun.
Airbus is evidently looking for some incentive from partner Avic to keep the plant going, especially since Airbus's president for China, Laurence Barron, says their joint operating company at Tianjin is only breaking even. Moreover, Airbus could assemble Tianjin's A320s and A319s more cheaply if it directed the work to its large-volume facility at Hamburg, which is also better connected with the company's logistics setup. But Tianjin serves a bigger purpose: It is supposed to greatly improve Airbus's market access to China.
The current business plan expires at the end of the first quarter of 2016. “We have an agreement on when we have to make a decision on the FAL [final assembly line] extension,” says Barron. He hints that talks about the project actually started earlier than envisioned.
“If we extend [the life of] the final assembly line, then automatically the NEO comes into the picture,” he says. Conceivably, the plant's jigs and tools could be removed and set up elsewhere, he notes, although that appears to be unlikely.
The Tianjin line is currently assembling three aircraft a month, working up to its designed capacity of four, whereas Hamburg's three lines should be turning out 25 a month by year-end. Airbus has delivered 89 aircraft from Tianjin since 2009, against a contractual requirement to assemble 284 there.
When Airbus and Chinese authorities agreed to establish the line in 2006, Airbus was rewarded with an order for A320-family aircraft; the Chinese gained not only a prestigious manufacturing facility but also, as was widely assumed, a chance to study Airbus assembly techniques. That know-how could then be applied to the then-imminentprogram.
At least in the early years of the facility, few of its Chinese staff left for Comac, however, suggesting little transfer of knowledge, which had been a major area of concern. One industry official familiar with Airbus's techniques says they are hardly a closely guarded secret, given that the A320 has been in production for more than 25 years.
Profitability at Tianjin should improve as Airbus employs more Chinese personnel to replace the many costly expatriates it brought in to ensure that the plant achieved quality targets. “The biggest challenge we faced was quality,” Barron declares. Previous initiatives such as an MD-80 final assembly have failed. But Barron says that all industrial key performance indicators are at or above Airbus standards.
Another way of reducing production costs in Tianjin would be to adjust the pre-FAL production process. Some work has already been completed. The wings are equipped in Tianjin, while its structures are assembled in Xian. “We are looking at avoiding sending wings back and forth,” Barron explains.
It is unlikely that expansion of the plant will be considered. Barron also does not see “any likelihood” that Airbus might look at setting up anfinal assembly line in China, in spite of the fact that the aircraft has proven popular with Chinese airlines.
Among various facilities added in support of the final assembly line, Airbus now has a logistics center at Tianjin. It is big enough to serve otherunits operating in China and is already set to handle parts for .
As much as the Tianjin line has helped Airbus improve its industrial footprint in China, the manufacturer is still facing political barriers for deliveries to Chinese airlines. The government refused to authorize the delivery of 35 A330s to Chinese carriers as a result of the conflict over the European Union emissions trading system (EU ETS). But Barron believes this will not force the company to find new buyers for aircraft being blocked by Beijing.
If necessary, Airbus could easily find new customers for the 35 A330s, since demand for the type is strong, says Barron. “My own view is that we will not get to that stage,” he adds, implying that the governments will work out a solution.
The A330s are supposed to be delivered starting next year under the airlines' preliminary agreements to buy them, says another official.
If Airbus decides to sell the A330s to other buyers, the key time for making a decision will presumably be the point at which equipment for customizing them must be ordered. That would include the engines, which for Chinese A330 operators almost always come from.
The other aircraft that the Chinese government is delaying are 10for HNA Group carrier Hong Kong Airlines. Although the aircraft are under order, the authorities are withholding approval to import them, says the second official. Hong Kong Airlines has presumably paid nonrefundable deposits for the transports.
Airbus, meanwhile, says it will not boost A330 production to 11 per month, from about nine now, if the conflict over ETS is not resolved and the 35 aircraft cannot be delivered to China.
On the Chinese side, it is likely that the airlines are quite eager to receive their aircraft on time. Amid slowing but still-rapid traffic growth, the A330 has become a standard type for domestic trunk routes, not only for its unit-cost advantages over narrowbodies but also because takeoff-and-landing slots at Beijing and Shanghai are becoming increasingly scarce. Moreover, the aircraft are probably not replacing many old aircraft, so deterring retirements is not a solution.
Regarding possible alternatives,and are optimized for longer missions than needed within China, although the carriers could conceivably buy the Boeing transports and use them to replace A330s on long international routes.
In the past few years, Airbus has noticed a tendency for Chinese airlines to increase the size of aircraft in their orders—for example, by substituting A321s for A320s. That trend is continuing, says Barron.
One issue that is already on the agenda is A320NEO anddelivery slots. Because Chinese aircraft orders are always part of the latest five-year plan, firm commitments tend to be given relatively late compared with other customers' practices.
There is only one Chinese order for the A350;bought 10 -900s and Hong Kong Airlines ordered 15. There are currently no orders from China for the A320NEO family, which is to enter revenue service at the end of 2015.
“The five-year planning is becoming a problem,” says Barron, because other airlines will have taken all of the nearer-term delivery slots before China even decided to order them. He cautions that there are always ways to find slots for customers if they are of strategic importance. But major blocks are much more difficult to reallocate at short notice. As a result, Chinese carriers might have gain access to their first A320NEOs through leasing companies.