Airbus may build jets in China

TOULOUSE, France - Airbus has agreed with Chinese Premier Wen Jiabao to study the possibility of setting up an assembly line in China - a move that could see its jets being built outside Europe for the first time.

Wen signed an agreement to carry out a feasibility study for the project at the start a European trip expected to unlock provisional Chinese orders for 70 A320-family single-aisle Airbus aircraft worth US$5 billion.

Under the plan, signed during a tour of the European aircraft-maker's giant assembly plant in Toulouse, southwestern France, Airbus and Chinese authorities will review over six months whether to set up a second A320 assembly line in China.

Airbus planes are assembled in Toulouse or Hamburg, Germany.

Airbus said it had committed to boost fourfold the value of components it buys in China to US$120 million by 2010. It has already promised China a 5 per cent share of the work to build the fuselage of its latest model, the mid-sized A350.

Fanning French hopes for a cluster of aerospace deals this week, Wen began the three-day French leg of his visit by flying directly to Toulouse, the home of the country's high-tech aerospace and space industries.

"It's the market where you have to be," Airbus China chief Laurence Barron told Reuters as Wen inspected the first A380 superjumbo due to be delivered to Singapore Airlines in 2006.

"One in six planes sold this year will go to China. Next year that will be one in five. We have 30 per cent of their fleet now and hope that will rise to 50 per cent in coming years."

The A380, capable of seating 555 passengers on its twin decks in standard format, is Airbus's 21st-century flagship and China has already bought five in time for the 2008 Olympics.

But the single-aisle A320 family - actually four aircraft seating 107 to 185 passengers - is the workhorse series that provides the Toulouse-based firm most of its orders and profits.

Asian demand and a host of new low-cost airlines have shielded Airbus and its only major rival Boeing from the fallout from US airlines bankruptcies this year. The two companies are set for a record year despite a trade row over subsidies.

The possible Airbus order matches Boeing's 70-jet deal agreed before US President George W. Bush's visit to China in November - seen as evidence that China is unwilling to let either side dictate terms in a fiercely competitive market.

IMPROVED TIES

French President Jacques Chirac is keen to gain France a firm footing in a country of 1.3 billion people that has rapidly become a vast new hunting ground where governments and big business are vying for access.

Political ties have steadily improved after a severe rift in the 1990s following the 1991 sale of French frigates to Taiwan. But France wants to develop economic and trade contacts faster.

Along with Germany, France is campaigning for the European Union to drop an embargo on arms sales to China that was imposed after the 1989 Tiananmen Square massacre in Beijing, in which tanks were sent to crush pro-democracy protests.

The programme of Wen's visit also fuelled speculation of deals for Eurocopter, the world's largest civilian helicopter firm which like Airbus is owned by European aerospace group EADS, and equipment maker Alcatel's space unit.

Wen is due to sign commercial contracts after talks with Villepin on Monday.

Nuclear energy is likely to feature in discussions, but Wen told Le Figaro he hoped France would sweeten its proposals. China is deciding whether to buy French, American or Russian technology to build four nuclear reactors for US$8 billion.

Wen is due to go on to Slovakia, the Czech Republic and Portugal when he leaves France on Wednesday.

- REUTERS