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Mon, Mar 20, 2006 - Page 11 News List

Airbus planning a PRC assembly line

NEGOTIATIONS Four cities are in the running as the site for the assembly of A320 passenger jets with analysts tipping Tianjin as the favorite and Zhuhai as a dark horse

NY TIMES NEWS SERVICE , FRANKFURT

Airbus is in the late stages of negotiations to build an assembly line for its A320 passenger plane in China, a landmark deal that would significantly lift its prospects for business there.

Producing European planes in China would open a new front in the battle between Airbus and Boeing for the world's next great aviation market, as well as underscore the growing role of state enterprises in the global economy.

Four Chinese cities are vying for the line, which would produce up to four A320's a month, in cooperation with Chinese state-owned aerospace manufacturers, industry experts said. The A320 is a short-haul jet that serves primarily domestic routes, which are booming across China.

On the short list for the project, these experts said, are Tianjin, a port near Beijing; Xian, an aircraft-manufacturing center; Shanghai, once the site of a McDonnell Douglas assembly plant, since closed; and Zhuhai, a port near Hong Kong.

While some analysts said Tianjin appeared to have an edge and Zhuhai was the dark-horse candidate, two senior executives close to Airbus said the competition was still undecided. The executives said they could speak only anonymously because of the delicacy of the negotiations. Airbus and the Chinese government are expected to make a final decision some time this summer.

The collaboration between a government-subsidized company from Europe and state-owned aircraft manufacturers in China would be a dramatic example of the new prominence of state enterprises worldwide -- a development that has worried some critics in the US.

The recent flap over a Dubai-controlled company that was blocked from acquiring the operations of six US ports illustrates the political sensitivities of such cases. The company, DP World, defused an outcry in the US Congress by agreeing to divest itself of its US holdings.

Aircraft technology has long raised security concerns in the US because of its capacity for military use. Putting an assembly line in China would aggravate those concerns, analysts said.

"Any major investment in Chinese production facilities by Airbus will be used in the US Congress to demonstrate a dangerous looseness in the sharing of sensitive technology," said Loren Thompson, a military analyst at the Lexington Institute, a policy lobbying group in Arlington, Virginia.

"No matter what they say," he added, "it is one step further down the path toward Chinese technology parity with the West."

Airbus, owned by an alliance of European aerospace companies and based in Toulouse, France, has said it is well aware of these arguments, but that a final assembly line in China would not pose a danger.

Publicly, Airbus has said only that it is considering a number of Chinese cities for a plant that would produce A320's. But it has not said which cities, nor has it committed itself to an agreement.

The plant would essentially clamp together parts of the A320, a small fraction of the manufacturing process. More than half the components, including technology-rich elements like the cockpit, would be produced in Europe and flown to China. The two senior executives close to Airbus said that the portion of work at the assembly plant would represent 4 percent to 5 percent of the value of the aircraft.

Even some traditionally sharp critics of China, like Larry Wortzel, the chairman of the US-China Economic and Security Review Commission, said the final assembly of A320's in China would be unlikely to transfer militarily important technology to the Chinese.

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