Airbus May Buy $1 Billion of Parts From China by 2020

By Irene Shen and Stephen Engle

Sept. 28 (Bloomberg) -- Airbus SAS, starting its first aircraft assembly today outside Europe, said 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 world's largest aircraft maker will be able to assemble four A320s a month by 2011 in eastern China's Tianjin city. That will bolster Airbus' procurement from the country from last year's $70 million, said chief executive officer Tom Enders.

``We're already in a steep first year to increase our sourcing,'' Enders said in a television interview before opening its Tianjin A320 assembly. ``In two years, we'll triple it, double it again in three, four or five years later.''

Toulouse, France-based Airbus is making China as important as the U.S., Enders said, seeking to add sales in the world's second-largest aviation market. China may need 3,000 planes in the next 20 years as a growing economy and easier traveling rules spur airlines to expand, according to Airbus estimate.

``The daily passenger volume has increased to about 200,000 yesterday at Beijing's airport,'' said the Chinese civil aviation regulator Li Jiaxiang. ``Air travel has recovered'' after visa restrictions and excessive security checks crimped demand during last month's Beijing Olympics, he said.

Approximately one of every five orders for new plane this year may be by a Chinese airline, said Airbus Chief Commercial Officer John Leahy. Airbus is poised to sign a 280-aircraft order with Chinese airlines before the Lunar New Year in January 2009, Leahy said.

Splitting Orders

The order, comprising A320, A330 and A350 models, is pending approval by the Chinese government, and may be split into two parts, he said.

``There's a lot of continuing demand for planes in China,'' Leahy said today in Tianjin. ``I don't expect the government to approve 280 at once,'' so the first 150 planes may be announced first, he said.

Leahy declined to elaborate on the breakdown of the plane models or provide their contract value. An A320 plane, which carries up to 150 passengers, costs up to $66.5 million each according to Airbus catalogues. The A330 model, which seats between 253 and 335 passengers, costs up to $180 million each, while the A350 model, which can carry up to 300 people, has a list price of $180 million.

About 96 percent of Airbus's employment and 75 percent of its procurement is in Europe, while the company is selling the planes all over the world.

``We have to share it,'' Enders said. ``We can't keep it all in Europe or the U.S.''

Mulling A321 Assembly

Airbus in June started shipping segments to be assembled to the Tianjin plant, its first assembly line outside Europe. Delivery at the factory, about 60 miles (97 kilometers) southeast of Beijing, due to start in mid-2009, with the first delivery to Sichuan Airlines.

The assembly line is a $600 million venture between Airbus and a Chinese consortium comprising Tianjin Free Trade Zone and China Aviation Industry Corp. The venture, which has agreed to assemble A319 and A320 models, is considering a plan to also make A321 models, which may require $12 million in additional investments, Airbus said.

Airbus's profitability is under pressure from the euro's strength against the U.S. dollar, which squeezes the margins between revenue from planes sold in the U.S. currency and euro- denominated production costs.

European Aeronautic, Defence & Space Co., parent of Airbus, will shift work to non-European countries as it seeks 1 billion euros ($1.46 billion) in cost-savings through 2012, two-thirds from its plane-making unit, Airbus.

Under the extended cost-saving plan, Airbus is required to save 650 million euros and other EADS units about 350 million euros, partly by moving engineering and manufacturing outside Europe.

EADS's existing Power8 program is designed to save 2.1 billion euros by 2010.

Airbus has forecast a 50 percent increase in plane output between 2007 and 2011. The company is already boosting A320 production to 40 a month by 2010 from about 37 now.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net