Airbus sold to Chinese operators more than 1,150 aircraft until now, including more than 980 A320 family narrow-body aircraft, more than 150 A330 family wide-body aircraft, and five A380s. Airbus has just received a firm order for 45 A330 aircraft with possible options on another 30 airplanes. To further quantify the order of 45 A330s, it means Airbus has signed the contract with China Aviation Supplies Holding Company (CAS) worth at least $11 billion. Additional 30 aircraft are estimated at the price of $7.5 billion.
Chinese Aircraft Market
In a fiercely competitive global market place, there are not too many companies like Airbus. The company not only has already established an unquestionable position and reputation in its duopoly market place but also has enough backlog to operate without an interruption for a decade at least if not more. If we put aside all previous airplane orders and focus just on the most recent one, it easily is detectable how strong the position Airbus has and future could only look brighter. It was just announced Airbus has received a firm order for 45 A330 aircraft with a possible options on another 30 airplanes. To further quantify the order of 45 A330s, it means Airbus has signed the contract with China Aviation Supplies Holding Company (CAS) worth at least $11 billion. Taking a highly optimistic approach, if the company will add additional 30 aircraft at the price of $250 million each, Airbus will enjoy additional income of 7.5 billion from China, one of the most important aviation markets in the World.
Airbus confirmed a firm order of 45 A330s from China
China – Strategic Market for Airbus
It could be very naive to believe Airbus signed a multibillion contract just out of blue. The truth is executives at Airbus recognize the importance of Chinese market and from the strategic point of view they perceive Chinese customers as the key business partners. If we realize more than 20% of total Airbus worldwide production is delivered to China, it becomes obvious the company cannot effort to overlook this Asian Market. The Airbus Group in China does an impressive job in terms of penetrating the market with its services and supporting the growth of the company. I really was surprised learning recently Airbus sold to Chinese operators more than 1,150 aircraft until now, including more than 980 A320 family narrow-body aircraft, more than 150 A330 family wide-body aircraft, and five A380s. I need to confess the number of aircraft sold in China is impressive especially if we realize there were barely 20 Airbus aircraft in-service in China in 1994. I think the company has achieved an impressive result growing the number of aircraft in-service in China by 50 times in the recent 20 years. If we add to this the workforce of the Airbus Group in China and its joint ventures is composed currently of more than 1,300 employees in multiple locations across the country, it becomes obvious the Chinese market has the highest degree of importance to Airbus.
First A380 delivery on Oct. 15, 2011 in China
Increased Presence in China
Airbus is a huge global conglomerate with enormous resources to focus its efforts on conducting various strategic analyses to support its long-term decisions and objectives. As a result it should come as no surprise the company invests heavily in the Chinese market which is not only huge but also extremely profitable. Airbus has done the homework and estimates there is a demand in China for more than 5,300 new commercial aircraft over 100 seats plus freighters between 2014 and 2033. The executives are fully aware of only because the Chinese market offers huge possibilities no financial gain will be achieved without the proper preparation. Consequently Airbus further develops its presence in the Chinese market to meet and anticipate highly demanding Chinese customers. It has only been few hours since Airbus announced another strategic move to increase its cooperation with Chinese customers.
Delivery of 100th A320 family aircraft assembled in China on Sept. 25, 2012
Airbus A330 Completion & Delivery Center
I am under the impression Airbus has made a well thought out decision to decided to open a second assembling facility in China. The new plant is identified as the A330 Completion and Delivery Center (C&DC) and will be located in Tianjin near the site of another Airbus facility A320 family final assembly line. Interestingly, the A330s will be assembled in Toulouse, France, and the rest of the job will be done in China. The C&DC will cover the aircraft completion activities including reception, cabin installation, aircraft painting, engine run and flight test. The C&DC will also provide aircraft delivery and customer flight acceptance. There is no other place where Airbus could have a better location to open the facility devoted exclusively to the A330s. The historical data clearly indicates China has always represented the largest geographical market for Airbus’ highly regarded A330 wide body aircraft. And Airbus knows how to attract even more Chinese customers to purchase this popular aircraft. After announcing last year the company plans to develop a special regional version of A330 just for the Chinese market and seeing a favorable interest about that plan from the Chinese carriers, the European giant had no choice but to bring the partnership with Chinese customers to the next level by opening a new plant in China with the anticipated cost of around $167 millions. It is expected the new facility will employ about 250 workers and have an output of two aircraft per month.
Airbus A330 production facility
Negotiations vs Concessions
I tend to think it is a great strategic decision for Airbus, and the new facility will give Airbus an edge in developing new relationships with Chinese business partners as well will help to enhance the existing relationships. But it makes me wonder what the decision making process looked like. Even Fabrice Bregier, Airbus Chief Executive Officer, stated the company has been negotiating almost 18 months to set up the A330 D&DC in China. I am sure both Airbus and Chinese officials negotiated hard. Concessions were made and would love to learn a little bit more about it. As for now Airbus acknowledged, the first delivery is expected to take place by the end of 2017.
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