Boeing Stunned As China Orders 28 Jets From Airbus
In a decision that stunned Boeing, China placed an order for 28 Airbus Industrie airplanes worth $2.5 billion yesterday during a visit to France by Chinese President Jiang Zemin.
The lucrative deal was announced after Zemin and French President Jacques Chirac dined together in a gourmet restaurant, underscoring the high stakes and political overtones of a jetliner sale to the world's most populous nation.
Chirac said the order consisted of eight of Airbus' largest airliners, the A340s, and 10 each of the smaller A318s and A319s. "This is good for Europe, good for France and good for employment," the French premier said.
The order will be a boost for Airbus, the European consortium made up of French, German, Spanish and British partners and based in the southern French city of Toulouse. The consortium is locked in a cut-throat struggle with Boeing to become the largest civil airline manufacturer in the world.
Yesterday's announcement is another blow to Boeing as its European rival continues to capture the majority of new orders for commercial airplanes this year. Airbus has been outselling Boeing by a more than 2-to-1 ratio in 1999.
The surprise order raises questions about Boeing's long-term relationship with one of its most important customers. Boeing has enjoyed two decades of success selling jets to China, but that relationship has grown rockier in the past year, Boeing insiders say.
But Boeing officials in China yesterday downplayed any strain in relations with the Chinese government. Politics did not play a role in the Airbus order, they said. The recent U.S. indictment of Boeing's McDonnell-Douglas unit and a Chinese aerospace firm on criminal charges of violating export-control laws was not a factor, nor was China's failure thus far to gain entry into the World Trade Organization, they say.
"In the end, China makes these decisions based on what they believe is a good business plan," said Tom McLean, Boeing's spokesman in China. "Naturally, we'd like to see the Chinese buy Boeing airplanes, but we'll move on from this and continue marketing our products."
McLean described Boeing's relationship with Chinese government and airline officials as tight. Boeing continues to work closely with Chinese airlines and has stepped up its training programs in China. "The management here is strong, and our relationship with the Chinese government is growing stronger all the time," McLean said.
Even so, Boeing Chairman Phil Condit returned empty-handed from a recent trip to China, despite his meetings with Jiang and other top Chinese officials.
Boeing blindsided
The Airbus order comes just weeks after Boeing said it completed a successful tour of its 100-seat 717 in China. But the Chinese passed up that plane for the rival Airbus 100-seater, the A318.
It was not clear where the new Airbus planes were bound, but industry reports have indicated that China Eastern Airlines Co. had negotiated for replacements for its six Boeing MD-11s, which are similar in size to the large A340s.
Privately, Chinese officials have said that China will divide its commercial jet purchases more evenly between the two manufacturers to reflect their worldwide market share, industry officials said.
In the short term, that could hurt Boeing more than Airbus because 67 percent of the airplanes flying in China today are Boeing jets versus 17 percent for Airbus. British, Dutch and Russian jetliners comprise the other 16 percent.
Still, Boeing officials acknowledged they were blindsided by the Airbus order partly because there was no active sales campaign. But the announcement also reflects how the Chinese conduct business, a style that mixes business with politics.
The Chinese airlines place proposals for new airplane orders with the Civil Aviation Administration of China (CAAC) - the government's central aviation authority. The agency groups the orders together and decides when to make an announcement, which can take years before it is finalized.
The announcements are usually tied to political events. President Clinton's visit to China in June 1998 yielded an order for 10 Boeing 737-800s. When Jiang visited the United States in October 1997, the Chinese government authorized orders for 50 Boeing airplanes worth about $3 billion, including 36 737s, one 747, five 757s and eight 777s.
A year earlier, when Vice President Al Gore traveled to China, he participated in a signing ceremony for five 777s for Air China, the nation's flag carrier.
Airbus has received the same treatment. The Chinese have ordered up to 60 airplanes over the past three years, announcing them at state visits.
But in February, as the regional economic crisis led to empty planes throughout Asia, China barred airlines from ordering new planes until 2001. However, the government still can make orders and allocate the new aircraft to state-controlled companies.
A fast-growing market
China's airline market is expected to be one of the fastest growing in the world over the next 20 years. Chinese aviation authorities predicted earlier this month that the country's civil-aviation fleet would more than triple to 1,618 aircraft in 2018 from 511 at the end of 1998.
The Airbus order in China continues a string of recent sales victories for the European consortium.
British Airways in early October purchased a dozen A318s with an option for another dozen. Last week, Denver-based Frontier Airlines bought 11 A318 and A319 jets - and reserved options for nine more - in a deal that replaces an all-Boeing fleet. And, on Thursday, Phoenix-based America West acquired 15 A318s and 12 A320-200s.
Boeing and Airbus also are competing to sell large widebody airplanes to Israel's El Al carrier. That decision is expected tomorrow.
Airbus has built up a substantial lead in new orders over Boeing this year. As of the end of September, Airbus has 343 firm aircraft orders, more than double Boeing's 154.
Material from Reuters news service was included in this story.
Stanley Holmes' phone message number is 206-464-2732. His e-mail address is: sholmes@seattletimes.com