China is expected to surpass the US to become the world’s biggest aviation market in terms of passengers turnover by the end of 2035. In expanding regions, China currently holds the top position in Air transport growth.
The country’s growing middle class also acts as a key driver to China’s air traffic growth.
This has led to the high demand of passenger planes commonly known as Single-Aisle aircraft.
To cater to the huge Chinese demand, the world’s two biggest plane makers, Boeing Co. and Airbus Group compete toe to toe with each other.
The deal is all about who grabs the highest market share and receives more orders.
China’s growing fleet market has opened up tremendous opportunities of growth for both Airbus, and Boeing.
The country’s aviation market has grown significantly both in terms of quality and quantity.
The increasing demand for new aircraft is largely driven by low cost carriers (LCCs). LCCs have been a major success in this region and have inserted significant growth in air traffic. They made travelling easy and affordable for larger part of the population. European and the US plane makers also benefited from the higher LLCs demand. Similarly, the Chinese government’s decision to ease up the visa polices also boosted the country’s air traffic growth.
Recently, the government decided to ease travel restrictions that uplifted China’s air traffic rate. This also means that there is a need for new passenger planes, and Airbus and Boeing will take the responsibility for it. In the recent past, the world’s second largest economy faces a persistent slowdown in its economic growth; however, there is no decrease in the country’s domestic traffic, regional traffic, and amazingly a momentous increase in the international traffic. China is important to both Boeing and Airbus due to its high demand for planes. Both the companies want to fully make use of potential Chinese aircraft market. Thus, a fierce competition is imminent.
Airbus in China
Airbus started its operations in China in 1984. In 1985, it delivered its A310 aircraft to a local China Eastern Airline. Since then, the leading European plane maker has seen tremendous growth in the country. Currently, Airbus holds 50% of China’s aircraft market. As of July 2015, the company had over 1,150 planes in operations with Chinese airlines. Recently, the leading aircraft maker also decided to increase its A320 production rate by 43% to 60 planes per month from a previous figure of 42.
Likewise, the company has also extended its partnership with its Chinese partner to 2025. In this time, it is expected that the company will speed up its A320neo plane production and deliveries. The A320neo is an upgraded version of A320 including a new generation engine, which is expected to provide 15% fuel savings. It has also built a finishing facility in China, which is operating effectively. The giant European plane maker also enjoys healthy relationship with its Chinese manufacturers. Airbus and Chinese aviation industry’s cooperation’s total value is expected to be around $500 million in the fiscal year 2015. Airbus 3QFY15 financial results also showed significant improvement. It reported a 6% year-over-year (YoY) in its operating revenue. The company’s total net orders also increased 13% quarter over quarter (QoQ). Moreover, its commercial aircraft segment also saw an increase of 7% YoY.
Boeing in China
Boeing has been operating in China for more than 40 years. Today, it holds more than 50% of commercial jetliners functioning in the country. Recently, the leading US plane maker is also in talks with the Chinese government for a deal of 6,330 aircrafts worth $1 billion. The company sees China as a huge potential market, which would drive growth in its aircrafts sales. To cater the growing needs of planes in the country it is also planning to increase its 737 passenger planes to 52 planes per month by the end of 2018. As of now, the company sells one in every three produced 737 in China.
The company also estimates that China will need around 7,120 airplanes worth $1 trillion by the end of 2035. In this period, it also expects China’s passenger traffic to grow at a rate of 7% annually. The company also plans to introduce its first manufacturing facility in the country to a higher demand of its 737 Single-Aisle planes. In the next two years, the company is expected to deliver around 40% of its planes to China. Boeing is also determined to assist Aviation Industry Corp. of China (AVIC) in restructuring the country’s aviation sector, improving business practices, and bringing efficiency in its supply chain management. Boeing also reported robust 3QFY15 earnings. Its quarterly profits rose by 24.5%. Likewise, the company’s revenue inclined 8.6% QoQ. Similarly, the company’s commercial aircraft deliveries also saw an increase of 7.5% YoY.
Introduction of C919 Home Grown Passenger Jet
Despite their dominance in the Chinese aviation industry, Boeing and Airbus are expected to face tough competition from the home grown C919 passenger jet. Manufactured by Commercial Aircraft Corporation of China (COMAC), the locally produced passenger plane is expected to contest with the leading foreign plane makers in the long run. The twin engine C919 aircraft can fly as high as 3,451 miles and has a capacity of 178 passengers. The introduction of C919 aircraft will provide stability to the local aircraft market and may help in reviving economic growth. COMAC has already received around 517 orders for the aircraft from 21 buyers. The home grown jet also receives unlimited amount of government support and substantial amount of funding, which the foreign plane makers don’t get to enjoy much. China’s aircraft market is mostly dominated by foreign companies. However, the multi-billion dollar project may test the foreign dominance in a decade or two. The country is also expected to add around 6,330 aircraft worth $960 billion to its passenger fleets. The maiden flight for locally produced C919 has been scheduled for next year. COMAC also confirmed that its wide body C929 has also entered R&D stage. It will be able to carry around 300 passengers and is expected to give tough competition to Boeing’s 777 wide body jets in the next 10 to 15 years. The attempt to carry out the local production may improve country’s overall revenue growth; however, it will take a significant amount of time to challenge Boeing’s 737 and Airbus' A320 Single-Aisle supremacy in the country.
Future Outlook
As reported by Airbus Global Market Forecast, by 2034, the people of China will be flying as much as Europeans today. It further illustrates that domestic China will be the largest flow in the next 20 years and is expected to grow nearly four times. Moreover, according to CLSA Asia-Pacific market report by the end of 2020, the number of Chinese tourists is expected to reach 200 million, primarily due to increase in income. All these estimates provide greater growth opportunity for the leading aircraft makers, but potential long term risk may follow. The introduction of C919 passenger jets and additional supply chain pressure due to higher demand may hurt the companies’ bright perspectives.
Source: http://www.chinabusinessnews.com
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