Airbus May Beat Boeing in China's Aviation Market

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China "probably has the most potential of any significant market in the world," Airbus China President Laurence Barron told Bloomberg News on Feb. 2. He predicts that China will account for 20% of Airbus revenue this year. Boeing derived a mere 4% of its sales from China in 2008, according to data compiled by Bloomberg.

Beijing rewards with aircraft orders

As it competes for Chinese orders, Airbus enjoys an important advantage over Boeing because the European manufacturer has been more aggressive in helping transfer industry expertise to China. Last year, Airbus opened an assembly plant in the northeastern city of Tianjin. In China, "if you allow for more local production and information-sharing, the purchaser is going to be a lot more willing to accept your aircraft," says Peter Harbison, executive chairman of the Center for Asia Pacific Aviation in Sydney. That's a step that Boeing, which suffered through an eight-week strike in 2008, has not taken, adds Harbison, because the company's unions are concerned about the company shifting jobs overseas.

A local presence is important because decisions about aircraft orders are highly political in China. The three largest airlines—China Southern, China Eastern and Air China—are still controlled by the government, and Chinese leaders like to use big-ticket aircraft orders as carrots to reward foreign governments that treat Beijing well. "When top-level Chinese officials go to France or the U.S., they sometimes come back with big orders for planes," says Jim Wong, Nomura's regional transportation and infrastructure analyst in Hong Kong. Deciding between Airbus and Boeing therefore "may not necessarily be a pure business decision." That could hurt Boeing now if China follows through on its threats to punish U.S. companies for the Taiwan arms sales.

The Chinese government wants investments such as the one Airbus has made to help local efforts to build a viable aviation industry that can compete with the big players. For instance, state-backed Commercial Aircraft Corp. of China (Comac), is working on a midsized jet, the C919, with engines from General Electric (GE). That Chinese plane isn't scheduled to launch until 2014, though, and the major foreign companies won't have to worry about local competition until then.

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau.

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