EADS’ Airbus is starting an assembly plant in China, in an attempt to ‘make good’ with the central Chinese government. According to Bloomberg, “it may buy up to $1 billion of components from China by 2020, as the world’s most populous nation may need 3,000 planes in the next 20 years.” The aircraft will be produced in Tianjin city, and the company expects that the plant will produce 4 A320s a month. The new plant is a $600 million venture between Airbus and a Chinese consortium. This is made up of the Tianjin Free Trade Zone and China Aviation Industry Corp. The plant will produce A319s and A320 series aircraft, and is also considering producing A321 models, which may require $12 million in additional investments.
A few things come to mind after having read this. First, I’d like to point out that many companies create plants in China / other Asian countries for cheap labor. According to Bloomberg, Airbus is planning to make $1.46 billion (1 billion Euros), by 2012, by building plants outside of Europe. Personally, I see this as the ‘cheap way’ to improving net profit / profit margin. It reminds me of the shoe industry, specifically Nike, which has made themselves dependent on outside countries for manufacturing / production. As I’m sure many agree, building airplanes is a delicate process. A defective shoe will not kill you, but a defective airplane can. Outsourcing to countries whose workers may ‘skimp’ on detail leaves lives at stake. Please note that I’m not questioning the ability of foreign workers, rather I am questioning their compensation, which may affect their attitude toward work and attentiveness to detail. It’s also important to side-note that China has a few pending lawsuits on regulation on production. I’m curious to know how this affects the new plant / industry.
Boeing is the leader in commercial aviation sales to the Asian market. Airbus is well aware that they lack sales in that region, and sees this as an opportunity to secure sales in China and surrounding countries. In his book “Boeing versus Airbus”, John Newhouse states that Boeing opened the door for Airbus when it first came out with the A32X series aircraft in European markets. Airbus gained vital relationships with airlines, and now is the largest manufacturer of aircraft in the world. As for the Asian market, I feel as though Boeing has a good grip and a good sense of its customer base, and what their needs are. It’ll be very tough for Airbus to ‘capture’ the Asian market like Boeing does / has.
I’m interested to see how this new plant plays out for Airbus. I am very concerned about the quality of products that come out of China. Regulations on labor and production may allow for plants to skimp on manufacturing. As I’m sure we all agree, skimping on aircraft production is dangerous. If the Chinese have stricter regulations specifically for the aircraft manufacturing industry, then it may work out. However, I think that this is the wrong industry to outsource.
Image: flickr.com
