“Airbus Lines up $15 Billion in Asian Orders”

Published on Author demere

Airbus is looking to expand its presence in Asia, specifically China and Vietnam. The company has agreed to supply Chinese companies with 160 aircraft, which amounts to $15 billion.

The reason for this move is due to expectations in the Chinese commercial airline market. The United States grew one percent last year whereas China grew nearly 10%.  Airbus has reportedly reached agreements with Chinese companies to produce the A320 model until 2016—eventually switching to a newer model, the A320neo. The airbus chief has been paraphrased in the article saying that he hopes that this foothold in the market will help sell hundreds of aircraft over the next decade.

The stakes are high being that the pricing of an A320 is $91.5 million and an A320neo is $100.2 million. Airbus is a European plane maker and its primary competitor is Boeing, an American plane maker. If the American market is growing at a sluggish rate and the Asian market has such a high demand for aircraft, then Airbus securing contracts with Chinese companies ensures that they will be the ones benefitting from the increasing demand in Asia. Being that these companies are huge, I am sure that the eventual success of Airbus or Boeing in the Chinese airline market will dictate fairly large numbers of jobs. I guess my question is if the Asian airline market is such a potential goldmine, then what is Boeing doing as Airbus’ primary competitor.


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2 Responses to “Airbus Lines up $15 Billion in Asian Orders”

  1. Foreign investment in China is substantial but what about internal investment. Chinese entrepreneurs also want to create companies that compete locally and internationally. As seen in the Hessler book, Chery(Automobile Company) came about by taking ideas and production schemes from other automobile companies abroad. Building on this foundation Chery now exports car engines and cars to the United States. During the 2008 Olympic Games Chery provided many of the cars for the games. http://www.cheryinternational.com/
    Could a “Chery” airplane manufacturer come about in a similar fashion? Another aspect to consider with Airbus and Boeing is their defense/military operations and government contracts. Would the Chinese government go to these foreign firms for their aircraft defense needs?

  2. As per class, the entry barriers to the wide-bodied jet market is far higher than for short-haul aircraft; at present it is a duopoly. The history of Airbus provides a cautionary tale, perhaps $20 bil in subsidies and cumulative losses up front, such that the venture may never repay the original investment in net present value terms. Why should China spend such a huge sum?

    Instead two strategies follow. One is to encourage local manufacture of components as a quid-pro-quo for orders. That takes much less up front investment and entails little risk. The other is to play Airbus and Boeing against each other to try to help domestic purchasers obtain good prices.