China Buys Airbuses, U.S. Carriers Only Wish for Service

By JONATHAN S. LANDRETH

(Virtual China News -- Mar. 8) The European consortium Airbus Industrie sold 10 new planes to China Northern Airlines Tuesday, at a time when both the sale of aircraft and the granting of commercial routes to foreign carriers in China are facing uncertainty due to strict Chinese regulations.

In the months preceding China's likely entry into the World Trade Organization, when trade with China is expected to increase dramatically, the U.S. aircraft manufacturer the Boeing Company vies with Airbus for piecemeal sales to state-backed carriers, and commercial airlines in the U.S. are lobbying hard in the domestic arena to secure a spot among the precious few international routes allowed into China.

Airbus signed an agreement with the Civil Aviation Administration of China (CAAC) to sell ten A321 aircraft to China Northern Airlines, an Airbus statement said. The sale originates from a package deal that was negotiated when French President Jacques Chirac visited Beijing in May, 1997.

The idea that things are open

Airline competition in China is made very complex by the fact that it is largely dominated by the government, pointed out Jeff Ruffolo, a spokesman for China Southern Airlines, one of China Northern's competitors.

"People in the West get the idea that things are open," Ruffolo said. "But everything is owned by the government." That selfsame government, Ruffolo added, has had a moratorium on the purchase of foreign aircraft "for at least six months."

As part of France's package deal with the Chinese leadership, twenty more A320s have already been sold, including ten for China Eastern Airlines (ticker: CEA), three for China Northwest, three for China Southern and four for Sichuan Airlines, according to a report by the Agence France Presse.

Despite intense competition between Boeing and Airbus in China, there is room enough for them both, according to a Boeing spokesman.

"We'd love to win them all," said Jim Klein of the international public relations division. "They'll win some and we'll win some."

In recent years Airbus has overtaken Boeing in terms of sales to China, according to Alfred Kahn, emeritus professor of political economy at Cornell University. Kahn was also chair of the Civil Aeronautics Board from 1977 to 1978, and is the author of the landmark book The Economics of Regulation.

At the same time that manufacturers vie for market share among China's government-backed airlines, commercial airlines in the U.S. are aggressively demanding entry to the hot market for trans-pacific travel.

Tourists and cargo

To date, only three U.S. carriers are permitted to fly into China –- Federal Express, Northwest Airlines and United Airlines.

In recent weeks, three others -- American, Delta, and United Parcel Service (UPS) -- have applied for the right to fly direct to China.

"If you don't have people going to China, you don't have trade," American Airlines' Chief Executive Don Carty told USA Today.

Beijing will only grant one additional U.S. carrier permission to offer service into China beginning in April 2001, under the terms of November's U.S.-China bilateral trade agreement.

Open skies over China

A spokesperson for the Department of Transportation (DOT) would not comment on the competition in Washington for that coveted slot, but Kahn's opinion is that the current deal with China isn't exactly fair.

"The reason there are more people flying between Ireland and the U.S. than between China and the U.S. is that there aren't open skies over China," said Kahn, who is considered by some the "father" of deregulation in the U.S. airline industry.

Kahn agreed to back the U.S. airline industry as they lobbied the DOT because he believes deregulation worldwide will raise the level of competition and service.

Forced us into this situation

"The problem with the November deal is that as long as you don't have open skies, you have a restriction across the trans-Pacific route and the Chinese have only increased the number of certifications by one," said Kahn. "So what we have is competition in Washington, not in the marketplace where I'd like to see it."

"The restrictions imposed by the Chinese have forced us into this situation," Kahn said.

The Chinese aviation market is projected to expand by 9.3 percent annually, which would make it the second largest market after the U.S. by the year 2018, according to statements made last October by Randolph S. Baseler, Boeing's vice president for marketing.

Though Beijing has banned importing aircraft made overseas for the moment, Boeing expects orders for 1,600 planes in the next 20 years, Baseler said.

To reach Jonathan S. Landreth: jslandreth@virtualchina.net