China, Germany Ink $17 Billion Deal For Airbus Jets

China, Germany Ink $17 Billion Deal For Airbus Jets
MaoNo / Pixabay

German Chancellor Angela Merkel traveled to China this week, and as is usually the case, the occasion was also used to announce a major business deal between the two countries. In this case, the announcement came Thursday morning, when the Merkel and Li noted that China had signed a $17 billion deal for 130 Airbus passenger aircraft.

Analysts note that Airbus is battling U.S. rival Boeing for the Chinese market, which is estimated to represent $1 trillion in commercial aircraft sales (over 6300 jets) in the next 20 years..

Airbus shares had moved up smartly to 60.87 euros at 0845 GMT Thursday.

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More on Airbus deal with China for 130 passenger jets

Air travel is set to boom in China as the consumer economy continues to grow. Chinese carriers are starting to expand their fleets as the number of passengers traveling both within China and abroad is projected to increase by over 300% in less than 20 years.

Of note, Airbus signed an agreement in July of this year to build a completion center for A330 wide-body jets in Tianjin, China, where it already has a facility for assembling A320 narrow-body planes sold almost exclusively to Chinese airlines.

The new deal announced on Thursday deal includes finalizing an order for 30 A330 jets that China had taken an option on in June.

This order from China reduces the worry at Airbus that production of the A330 wide-body jet, competing with Boeing’s newer 787 Dreamliner, would gave to be reduced again as Airbus gears up to introduce an upgraded wide-body model with efficient new engines.

The new order from China also call for the purchase of 100 of Airbus’s best-selling A320 family of medium-haul aircraft. Ongoing sales of both types of aircraft are a critical source of revenue for Airbus until they can get their new aircraft designs into production.

Of interest, U.S.-based Boeing has also signed an agreement with Commercial Aircraft Corporation of China (Comac) to build a completion center for its 737 jets in China, but has not finished construction on the facility to date.

Analysts point out that the new Airbus deal is a much needed boost for Comac, which has encountered a number of problems in designing and building the C919 a narrow-body jet it hopes will compete with Boeing’s 737 and the Airbus A320.

China hedging its bets and trying to maximize exposure to Western technology

Given that China’s Comac had already signed a big deal with Boeing for up 240 jets over five years (including a completion center), it is clear that that China is making an effort to hedge its bets by engaging with both Boeing and Airbus.

Aerospace industry analysts also point out that getting the two major global aircraft manufacturers to open completion centers in China is a big deal for China, both in terms of prestige and technology transfer, and in that playing one firm off the other helps to keep both on their toes and gives the Chinese government more leverage in negotiations.

Russia looking to get in on the action

China’s air travel boom has also gotten attention in Russia, which has announced plans to work with China on a wide-body plane to compete with Boeing and Airbus jets. According to comments made by Russian Deputy Industry Minister Andrey Boginsky a few months ago, Russia’s United Aircraft Corp. and China’s Comac, are discussing a work plan related to the memorandum of understanding of May 2014.

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