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Airbus Said to Near $9 Billion Sale to China MARKETPLACE By Bloomberg

Posted on: Monday, 5 December 2005, 12:00 CST

By Andrea Rothman

Airbus was close on Sunday to winning an order from China for as many as 150 planes valued at $9 billion, according to three people with direct knowledge of the negotiations.

Prime Minister Wen Jiabao, who toured the Airbus factory in Toulouse, could announce at least part of the order on Monday at a news conference in Paris, according to the three people, who declined to be named because the order had not been announced. Airbus and its U.S. rival, Boeing, are counting on China, the world's most populous nation, for growth while carriers in North America and Europe struggle with slumping profits. Two weeks ago, Boeing won an order from China for 70 planes worth $4 billion. But Airbus estimates that Air China and the country's six airline groups may need 1,790 new aircraft valued at $230 billion by 2023.

"It's time for Airbus to get something," said Richard Aboulafia, vice president at Teal Group, an aircraft consulting company based in Fairfax, Virginia. "Boeing recently got two big orders," Aboulafia said, "and the Chinese like to shop on both sides of the street." Boeing signed the 70-plane order during a visit to Beijing last month by President George W. Bush. Boeing has since said it was in negotiations with the Chinese for an additional 80 planes. The company, based in Chicago, won an agreement in January from six Chinese airlines for the purchase of 60 of its 787 Dreamliners, Boeing's newest midsized plane, which is scheduled to enter service in 2008. The order announcement from China would be for A320 planes, according to those involved. The A320 is a single-aisle aircraft that competes with Boeing's 737 and generally sells for around $60 million each, depending on the model. An Airbus spokeswoman, Barbara Kracht, declined to comment on Sunday. Repeated calls made to the Chinese Embassy in Paris on Sunday were not answered. Separately, Airbus said Sunday it might open a factory in China for assembling the A320 as part of its plans to expand in that market. "If it happens, this is a huge deal," said Doug McVitie, managing director of Arran Aerospace, a forecasting company in France. "It would be unprecedented for either Airbus or Boeing to have a production line in another country. It's an attempt to buy market share and keep Boeing from selling further to China." Airbus did not provide specifics on when such an assembly line might be set up, or what conditions must be met for an agreement to be concluded. Airbus and Chinese officials expect to make a decision after discussing options over the next six months, said Kracht, the Airbus spokeswoman.

Airbus's procurement from Chinese subcontractors is expected to increase fourfold by 2007 from last year, to $60 million, and to $120 million by 2010, the company said in a statement after Wen's visit to its factory. China Aviation Supplies Import & Export Group, a state-owned company that buys planes for the nation's airlines, would be the signatory for any purchase agreement from Airbus. A major order would help Airbus keep pace with Boeing on new-aircraft purchase orders this year in China, where Boeing is in the lead and seems likely to beat Airbus for the first time in five years. By the end of October, Airbus had 494 orders in its books, lagging behind 800 through Nov. 30 for Boeing, according to information from the manufacturers. Airbus will not announce new business it signed in November until next week. Boeing is predicting that it will beat Airbus in new orders in 2005.

Airbus has had firm orders for 69 planes in China this year, more than the 57 for Boeing. The company's last order from China was in September, when China Southern said it would buy eight A330-300s and two A330-200s. Toulouse is the first stop in a four-nation European tour by Wen, the Chinese prime minister, whose other stops are Slovakia, the Czech Republic and Portugal through Dec. 10. -

VW seeks Russian site

Volkswagen, the No. 1 European carmaker, has confirmed that it "is in talks" with the government in Russia to build an assembly plant there. "We are interested in entering the Russian market," Thomas Mickeleit, a Volkswagen spokesman, said Saturday from the carmaker's headquarters in Wolfsburg, Germany. Mickeleit declined to comment on a Berliner Zeitung report that Volkswagen plans to invest 330 million, or $387 million, to build a plant on the outskirts of Moscow that will produce 150,000 small cars annually. The price for the small car, still undeveloped, would at most be 10,000, the newspaper said, quoting the Russian Ministry for Industry. Car sales in Russia are expected to almost double by 2010, to 2.8 million, as wages rise, according to forecasts by the Moscow brokerage business Troika Dialog. Toyota said in April that it would invest $144 million to open a factory in Russia. Renault opened a $250 million joint-venture auto plant in the city in April. DaimlerChrysler is also in negotiations with the Russian government to build a Mercedes- Benz assembly plant near St. Petersburg. Bloomberg News

Source: International Herald Tribune

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