Flogging a Dead Horse

Why Would China Want the Airbus A380?

The world's most populous country doesn't necessarily need the European superjumbo.
Photographer: WOLFGANG VON BRAUCHITSCH
AIRBUS SE
+0.66
At Closing, January 18th
90.40 EUR
BOEING CO/THE
-10.85
At Closing, January 18th
340.16 USD

French president Emmanuel Macron gave a horse to his Chinese counterpart Xi Jinping this week, but handing over the Airbus A380 has proved more difficult.

The visit started with talk about Airbus offering China a production role on its superjumbo aircraft to secure a program-extending order for the slow-selling jet. While discussions were held on sales of the A380, according to Macron, there's no sign yet of any new orders or industrial deal for the double-decker plane.

There was a time when China taking a production role on the A380, a symbol of European industrial cooperation and technological accomplishment, would have been unthinkable. Times have changed.

Offering China what amounts to largely cosmetic work on the A380 -- things like the cabin equipment and paint job would be added locally -- would be a small price to pay to rescue the program, which risks being shut down due to a dearth of fresh orders.

If China can be persuaded to accept in the coming weeks or months, in return for purchasing more of the aircraft, Airbus should seize a much-needed helping hand. There's no guarantee China will offer one though. 

On paper at least the A380 is well-suited for the Chinese market. The world's most populous country has congested skies and airports, which frequently leads to long delays. And air traffic there is poised to increase, a lot.

Airbus

Cramming as many people as possible onto a plane might therefore make sense on particularly busy routes. Airbus thinks cities like Shanghai, Beijing and Guangzhou are candidates to become "super-hubs", which would also suit the A380 business case. Top customer Emirates uses the A380 to serve its Dubai hub.

China Congestion

Chinese airlines have a poor record for punctuality. Could the A380 help ease the squeeze?

Source: OAG Punctuality League

Table shows world's largest airlines but only includes those where OAG could obtain flight status data for at least 80% of schedule flights. Hence some large airlines are excluded. I've also excluded airlines ranked 10-17 for reasons of space. On-time defined as arriving within 15 minutes of schedule.

That's the theory, but the A380 has been a lesson in how business plans that look good on paper can disappoint in reality. So far China has only purchased five superjumbos and operator China Southern Airlines Co. has at times struggled to find ways to use them profitably. So any discussions with Airbus will probably focus on what China gets in return.

Until now Airbus and rival Boeing have been allowed to tap the Chinese market without establishing large-scale local manufacturing or transferring lots of technology (in contrast to the the car industry, for example, where foreign automakers have established much bigger joint ventures.) True, Airbus set up a final assembly plant for the A320 in Tianjin in 2008 but it produces only four aircraft a month, or less than a tenth of global production of that model.  1  This is being ramped up to six a month. Boeing is only now setting up a finishing plant for its 737 in China.

This comparatively modest local investment partly reflected a power imbalance: China's need for aircraft to serve its rising middle-classes was greater than manufacturers' need to sell planes there. China's aircraft builder Comac has won hundreds of orders for its C919 single-aisle jet but is still a way off challenging the Boeing and Airbus duopoly.

China holds a stronger hand today. Overall, Chinese deliveries account for almost one quarter of Airbus's aircraft production. Though it will need thousands more new planes in coming decades, China doesn't necessarily need A380s. Beijing is also unlikely to be giddy at the prospect of gaining only a modest part of the A380's value-added. Designed almost two decades ago, the double-decker is no longer cutting edge. Smaller wide-bodied aircraft such as the A350 and Boeing 787 make greater use of composite materials. 

"For aviation, China isn't a cheap or stupid market to peddle unwanted goods," Will Horton at CAPA Centre for Aviation told Gadfly. "If A380 sales were up to Chinese airlines, they wouldn't buy it -- but of course orders are political." 

With Airbus running out of options for the A380, expect the Chinese to hold the whip-hand.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Last year Airbus opened a China cabin fitting and painting center for the wide-body A330

To contact the author of this story:
Chris Bryant in Berlin at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE