Courting China: Airbus makes all the right moves
Seattle Times business reporter
BEIJING — Liu Qian, chief pilot for China Southern Airlines, furrows his brow as he pores over technical charts, studying emergency procedures for handling a twin-engine jet if one engine fails. He started his career 21 years ago flying Boeing planes, but this time he's training on an Airbus.
Every day, more flights from China are whisking well-heeled Chinese around the globe with pilots like Liu behind the controls. But Boeing planes no longer dominate Chinese skies the way they once did — two-thirds of the planes delivered to China last year were from Airbus.
Liu, with neatly combed hair and a yellow pinstriped shirt, has a youthful look in spite of his top post at China's largest domestic airline. He will spend the next six days at a state-of-the-art Airbus training and maintenance center near Beijing's airport, getting guidance from veteran European and American pilots. Airbus provides much of the training free of charge to keep its customers happy.
"For the first airplane, I prefer training from the manufacturer," Liu says. "They give more details, and we learn much more."
The last time he visited Boeing in Seattle for training was in 1986, he said. "It's so long ago."
Boeing now finds itself competing head to head with European rival Airbus in the fastest-growing market in the world, a market Boeing once owned. The futures of both aerospace giants increasingly depend on how well they can win over Chinese airlines, which are expected to spend nearly $200 billion to triple their fleets over the next two decades.
The Europeans moved ahead in this intense rivalry by finding the right formula to fit China's political and economic situation. They put a large staff on the ground for training and support, offered different aircraft models to suit China's sprawling cities and vast, undeveloped provinces, and sent high-level politicians to seal the deals.
Airbus opened its training center eight years ago, part of an $80 million investment in Beijing to build its China headquarters — a three-building complex of industrial Euro-chic that includes everything from sales to spare parts and repairs, with a new design center under construction. Every piece of material was imported from Europe, from tiles to toilet paper. The scent of espresso wafts down the austere hall from the cafe. New, Chinese-built black Audis fill the parking lot.
"When you give good support to a customer, he takes that into account the day he has to have additional products," says Christian Stie, general manager of flight operations and training support at Airbus China. "It makes your life easier when you try to sell more airplanes."
The neighborhood around the Airbus complex has a desolate air — dusty, barren and almost an hour's drive from downtown Beijing. But the location is just minutes away from the airport — and from Airbus customers.
Stie believes this kind of attention to service has helped Airbus cut into Boeing's market share.
Boeing operates a pilot-training center in the southwestern city of Kunming through its subsidiary Alteon. Staffed by local Chinese, it is a profit-oriented business that offers training on both Boeing and Airbus planes. Some training is included with the purchase of a plane.
Airbus, on the other hand, treats training as a way to promote airplane sales, not as a profit center. Airbus has 60 expatriates in Beijing providing customer training and support, Stie said.
Boeing contends Airbus can afford this generous treatment because European governments give it huge subsidies.
Europeans learn from early mistakes
By the time Airbus sold its first plane to China in 1985, Boeing had a 13-year head start. Now Airbus has 270 planes in service in China, about 32 percent of the market. It outdelivered Boeing in China last year, and Chinese sales helped propel it ahead of Boeing in total worldwide deliveries for the second year in a row.
One place to see the competitive balance shifting is the main base of China Southern, the Baiyun Airport in Guangzhou, one of the world's largest and most modern airfields. Opened last year at the center of an enormous manufacturing hub in the Pearl River Delta, the airport is a showcase for the dramatic transformation of China.
The $2.5 billion airport, with its sparkling glass and marble atrium, eventually will connect to the city through light rail and subway lines. It will accommodate 80 million to 100 million passengers each year, more than the capacity of Los Angeles International Airport, said Baiyun Airport Director Gao Wei Gui.
Baiyun Airport already is constructing new gates to accommodate the giant A380.
China's grasp of the capitalist dynamic has assisted Airbus' expansion: Chinese leaders know they can get much better deals when two foreign manufacturers battle it out.
The pressure may be more cutthroat than in other markets. Elsewhere, one potential buyer normally would not know the deal a competitor had negotiated. But in China, since buying decisions are made by the central government for all airlines at once, offers easily can be compared.
"We hope they compete," said a Civil Aviation Administration director in Beijing who did not want to be named. "That's all very good for us."
Yet Airbus stumbled for years in China after its initial spate of sales because it lacked a good understanding of the market. Its business didn't really get off the ground until the mid-1990s.
A breakdown in Boeing's management in China created the perfect opening for Airbus, said Jim Eckes, managing director of consulting firm Indoswiss Aviation. Matt Chen, a veteran Boeing manager who had handled business with China for three decades, retired early and unhappily, leaving a vacuum.
"Boeing retired the one guy who knew the nuts and bolts of China and was respected by everyone," Eckes said. "Airbus would have still been successful, but not as rapidly."
Catering to market
To break into a market dominated by Boeing 737s, Airbus started offering the A320 family, betting that a slightly roomier plane would suit China's more heavily trafficked routes.
Chinese airlines also liked having the latest technology, called fly-by-wire, which controls an airplane's flaps electronically rather than by cables. And the company's standard design for cockpits simplified pilot training and licensing, a challenge in China's fast-growing airline sector.
Another turning point came when Airbus won over some Chinese airlines flying to Tibet, said Rick Jones, general manager of customer marketing for Airbus China.
The steep, 800-mile route from the southwestern city of Chengdu up to 12,000-foot-high Lhasa is one of the most difficult and dangerous flights in the world. It's also one of the most lucrative. The planes are full of Chinese and foreign tour groups visiting the roof of the world.
With a smaller new plane, the A319, Airbus held demonstration flights over the mountains surrounding Lhasa in early 2001, and its performance impressed customers. Soon after, regional airline China Southwest started adding Airbus jets to its fleet, and others followed.
Boeing's weakness was not the quality of its products but a sense of complacency, said Harry Seeger, marketing director of Ameco Beijing, an aircraft-maintenance joint venture of German airline Lufthansa and Air China. The company services 300 planes a day, mostly Boeing jets, from foreign and Chinese airlines.
"The product they deliver from a technical side is top," Seeger said. But Boeing's product line is less complete in size and range than Airbus', and Chinese airlines expanding their routes seem to like more choices, he said.
"They underestimated Airbus," he said. "When you're too long number one, you get negligent."
French politicians roll out red carpet
Politics also played to Airbus' advantage. Chinese Premier Li Peng had been shunned by world leaders for his part in the bloody 1989 Tiananmen Square crackdown. But in 1996, he was invited to France and met with President Jacques Chirac.
During the visit, the payoff for Airbus was Chinese contracts for 33 planes worth almost $2 billion.
"The French really got their foot in the door using the highest-level politicians they had," said Eckes.
A flurry of official visits last year further warmed Sino-European relations. Chinese President Hu Jintao visited Paris in January, and Chirac visited China in October, declaring the start of "The Year of France in China" and announcing the sale of another six Airbus jets.
Europe has opened its doors to Chinese tourists since an agreement last year to ease visa requirements. Meanwhile, the United States further tightened its visa restrictions for Chinese trying to enter the country, even for business negotiations or professional training.
Airbus may get the biggest payoff yet if the European Union decides to lift its embargo on military sales to China.
"If Chinese [government] leaders had their druthers, they'd prefer to buy Airbus for political reasons," said Eckes.
Airbus is moving fast to bring more incentives to China. A field of weeds next door to the training facility in Beijing soon will become a new engineering center that will employ 200 people and design a portion of Airbus' latest proposed plane, the A350.
A decade of investing in training is starting to bear fruit for Airbus, creating customer loyalty and strong personal relationships, says Stie, a Belgian who personally trained the man who became China's minister of aviation.
With the nation's air travel growing at a breakneck pace, Chinese airlines need help with training and infrastructure to avoid accidents. "The more we support them, the better they can cope with this growth."
Double-decker Airbus vs. fuel-efficient Boeing
When early this year Airbus unveiled its A380, the biggest passenger plane ever, it put up a billboard in Chinese off the highway to Beijing's airport. "Everybody is expecting a giant in the air, born the 19th of January," the sign proclaimed.
A key difference between Boeing and Airbus is the vision for what kind of plane will suit future travel markets, including China.
Boeing predicts that Chinese air travel will grow in a pattern of high-frequency flights carrying 200 to 300 people. The 787 bets that a smaller, fuel-efficient airplane will prevail because it offers the convenience of direct flights between numerous cities and also can handle long-distance routes overseas. In January, China agreed to buy 60 of them in time for the Beijing Olympics in 2008.
The A380 is mammoth by any standards. The double-decker jet starts with 555 seats, double the capacity of the 787. Airbus bets its giant plane will thrive in China because of the huge populations of Chinese cities and the sprawling air hubs that have formed in Beijing, Shanghai and Guangzhou.
Boeing so far has brushed off any competitive threat from the A380.
"The market is not ready for a plane that size," said Boeing Vice President Rob Laird. The sale of 60 787s to China shows that "we've got the right products and have understood the market better than our competition," he added.
While Airbus has made significant gains in China over the past decade, some observers say conditions in China will keep either competitor from getting too far ahead.
"There's a broader chess game going on here," said Michael Allen, chief operating officer at Back Aviation Solutions. "China is going to play both sides against each other."
Kristi Heim: 206-464-2718 or firstname.lastname@example.org
Copyright © 2005 The Seattle Times Company