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Boeing woos China with expanded parts plant in Tianjin
Published on: 2011-04-27
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Boeing’s official opening today of its newly expanded composites factory in Tianjin, China, a joint venture with Aviation Industries Corp. of China (AVIC), may have more to do with the politics of aircraft sales than low-cost manufacturing.

One might think that an aircraft composites factory in China would be far cheaper to operate than one in the U.S. Not so, according to Richard Aboulafia, aerospace analyst for the Teal Group, outside Washington, D.C.

Why?

Composites manufacture is becoming increasingly mechanized and computer driven, while the materials -- graphite fiber and resin -- are sourced from around the world. This means that China’s cheap labor doesn’t matter as much with this high-tech industry, as it does with, say, toy making, he said.

However, Boeing’s China plant isn’t as far along this curve as facilities in North America. In a brief email from China, Boeing spokeswoman Ann Schmidt said the 500,000-square-foot facility includes no fiber-laying equipment, which suggests that much of the work is done by hand.

There may be intellectual property risks for Boeing (NYSE: BA) joining a venture with AVIC. That's because AVIC is simultaneously attempting to break the Airbus-Boeing duopoly with its own narrow-body jet, the C919. Chinese manufacturers are happy to pick up Western aerospace technologies wherever they can. Chinese engineers probably will glean important bits of technology information from building parts for Boeing aircraft in China.

But for a company like Boeing, which needs to continue selling aircraft to China as potentially the world’s largest market, the Tianjin factory is a good strategy to keep the lines of communication open with Chinese leaders, who need their own political cover to keep buying from Boeing.

"Composite production is very labor un-intensive and capital intensive, you don’t get any advantage of being in China, you’re just accessing the market,” Aboulafia said. “The government still retains control of commercial orders; it’s important to message to them that there is an industry footprint over in China.”

Aboulafia also thinks that Boeing’s strategy in China beats Airbus’ strategy: It's better to build aircraft parts as Boeing does, rather than actual aircraft as Airbus does on its A320 assembly line, also in Tianjin.

"You look at what Airbus has been saying about Tianjin, they’ve pretty much said there’s an additional cost of building A320s in China, you’re replacing a supply chain and shipping over everything,” Aboulafia said, contending that the costs of a parts factory are easier to control than those of an entire aircraft assembly plant.

Boeing invested $21 million in the Tianjin factory expansion, increasing its capacity by 60 percent, according to a Boeing release. The company says the facility will employ 1,000 people by 2013.

Boeing spends $200 million annually buying parts from China, the company also said in its press release.

It’s notable that Boeing, which normally keeps such figures close to the vest, chose to place them in the April 18 release. Perhaps the real audience isn’t Western readers but Chinese government leaders, those whom Boeing wants to encourage to order Boeing aircraft.

 

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