Transcripts

China Gives The Airline Building Industry A Test Flight

SUZANNE PRATT: The world's biggest passenger aircraft, the Airbus A-380, landed in the U.S. for the first time today. The double-decker jumbo jet took off from Frankfurt, Germany and eight hours later touched down at JFK airport in New York. Most of the 483 people onboard were employees of Airbus and Lufthansa, which owns this particular plane. A second A-380 also landed in Los Angeles from Australia, with just a flight crew aboard. Airbus is trying to promote the new plane, which has been plagued with problems and is now more than two years late in deliveries.

KANGAS: Meanwhile, the government of China has seen how the aviation market is going and it wants a piece of the action. Airlines around the world are expected to buy 20,000 big jets in the next 20 years, at a price of more than $2 trillion. Now Beijing is setting up a state-owned company to take on Airbus and Boeing. Darren Gersh reports.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is almost a rule, when a Chinese president comes to the United States, he must first stop at Boeing to place an order. Maybe that's why the Chinese government now wants to build its own passenger planes. Boeing and Airbus have taught the Chinese how to make cargo doors and assemble airplane tails. A small, Chinese-made regional jet will hit the market in 2009. So aviation analyst Richard Aboulafia says there's no question the Chinese could build a basic big jet.

RICHARD ABOULAFIA, VP, TEAL GROUP: The question is do they really want to add value in this business by creating something new and the jury is heavily out on that. I can't think of a single government-run industry world wide that has ever succeeded in competing like that.

GERSH: The ticket to this ride is hefty. Aboulafia figures it will cost $5 billion to build a competitive single-aisle jetliner. But most industry profits come from the twin-aisle jets used on international routes. Cost to bring that to market: $15 billion and that's without a single firm order or any guarantee of success, which is why Aboulafia wonders if this isn't all a bit of political theater.

ABOULAFIA: If they were going to put this on the market, if they were going to privatize it, the way you'd make the industrial organization attractive to investors would be to promise a huge revenue stream from a project that might not materialize, but at least looks good on paper.

GERSH: Building a passenger plane has been a preoccupation of the Chinese for more than 30 years. China scholar Nicholas Lardy says it dates back to the early' 70s when Beijing bought a Boeing jet, took it apart and then tried to build their own.

NICHOLAS LARDY, CHINA SCHOLAR, PETERSON INSTITUTE: They spent a lot of time on this, a lot of energy, a lot of money and the aircraft never flew.

GERSH: The Chinese government has set no timeline to enter the market, but this project could take more than a decade, which means Beijing will be buying Boeing planes for years to come which is a good thing, considering those planes are our number one export to China. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.