The AE31X programme is beginning to face its first real challenges, six months after China, Europe and Singapore inked a framework agreement to co-develop a new 100-seater family of jet airliners. Negotiators at the tripartite talks are wrestling with a series of critical issues which must be resolved shortly for the project, once dubbed Air Express, to stay on schedule.
Officials from all three partners, Aviation Industries of China (AVIC), Airbus Industrie Asia (AIA) and Singapore Technologies (STPL), concede that considerable progress still needs to be made if they are to achieve their self-stated goal of finalising an overall business agreement by the year's close. With new competitors lining up in the market, time is now of the essence.
Spurring on the call for greater speed is the former McDonnell Douglas (MDC) MD-95, being revived with a fresh breath of life by MDC's new owner Boeing. Other similarly sized aircraft in the wings include the Indonesian IPTN N2130 and a possible new 90- to 120-seater design from Bombardier and Mitsubishi.
At stake is a projected market for 3,000 aircraft over the next 20 years.
With 1997 drawing to a close and a large number of major points still outstanding, China has begun to express some concern. "We really worry about the delay, because the market is slipping away. We hope that there is not another half-year of postponement. One or two months is OK, but too much delay is really going to be a problem," warns AVIC international co-operation and trade general director Tang Xiao Ping.
Singapore has voiced similar misgivings about the pace of negotiations. In the 18 months since STPL signed up, South Korea has dropped out, the European baton has passed from Aero International (Regional) to AIA, and the programme has now slipped by one year. "All major decisions must be taken by the end of the year and development must start in 1998," echoes Singapore Technologies Aerospace (STAe) senior vice-president Lim Lu Hock.
AIA is placing greater emphasis on the substance, rather than the timing, of an agreement. "Such a complex aeronautical programme has a life of at least 30 years," notes AIA president Carlo Scaglia. "The problem we now face is that, in the next few months, we've to take critical decisions that will have a long-term impact and cannot be modified."
The latest revised AE31X timetable now calls for pre-development to begin in early 1998, with full-scale development starting in 1999, a first flight around mid-2002, followed 12 months later by type certification and initial entry into service.
This is dependent on the three partners concluding a detailed working agreement before the new year (Flight International, 15-21 October, P9).
TECHNOLOGY TRANSFER
Arguably the biggest hurdle to overcome is the transfer of technology from Europe to Asia and the price tag put on it. This involves not just furnishing AVIC with essential design, development and tooling know how, but extends to other software disciplines, such as programme management, quality assurance, sales and product support skills.
AVIC's Xian Aircraft (XAC) has accrued a lot of experience building and flight-testing aircraft such as the Y-7 turboprop development of the Antonov An-24 and the indigenous FB-7 strike fighter. The company requires a complete industrial and commercial transformation, however, if output is to be ramped up from "prototype production" levels to the assembly of 50 airliners a year by 2003.
AIA faces a twofold challenge - to design, develop and sell a family of new aircraft, while simultaneously having to phase and match the transfer of technology and skills to enable AVIC to meet its obligations.
"Technology transfer is not an event, it is a process," says AIA Beijing representative Philippe Lebouc.
While the three sides are now working to identify the key areas of aerospace acumen needed by China, the more delicate issue of payment also has to be addressed. "The technology transfer fee is the biggest problems we face today-the principle is easy, but when we talk in details, it is not," confesses Tang.
Participants in the talks suggest that the end solution is going to require some "horsetrading" on the part of AIA and AVIC and is unlikely to be completely resolved until the last minute. Other complicating factors include the need for additional funding to modernise Xian's infrastructure and conflicting pressure to minimise development costs.
Shanghai Aviation Industrial (SAIC) had been considered the more logical site for AE31X final assembly, given its experience on the Boeing MD-80/90 TrunkLiner programme. A Chinese political imperative to divert new investments away from the prosperous east coast to the underdeveloped interior favoured Xian.
XAC does offer some clear benefits over SAIC, notably its extensive ground- and flight- test capability and equipment and comparatively low production costs. Tang notes: "Shanghai has one of the highest labour rates in China. The disadvantage of Xian is that it is not so convenient or comfortable, so we need to improve its infrastructure and communications."
COST CONCERNS
The need to contain costs has taken on heightened importance in the wake of a airline feedback to a recent worldwide market survey. The three partners are endeavouring as a result to cut production costs by up to 25%, to reduce the AE31X's sticker price to under $20 million (Flight International, 8-14 October).
According to Tang, one STPL proposal under consideration is to build a substantial proportion of the AE31X's airframe in China, where he claims that labour costs are between 30% and 50% below those of Europe. This could entail XAC taking responsibility for virtually the entire fuselage, in addition to the wing and final assembly.
AIA appears in principle to be receptive to the idea. "We looking how to optimise, utilise and implement all available resources, expertise and experience, not only to produce the best product, but to reduce as much as possible recurring and non-recurring costs. This is crucial, not just for the selling price, but to direct operating costs as well," says Scaglia.
If Singapore's suggestion is adopted, China's share of structural work would balloon to more than 80%. Reconciling this with the planned joint venture's shareholding will require some juggling and compromises. Under the framework agreement signed in May, AVIC will take a 46% stake in the programme, AIA 39% and STPL the remaining 15%.
"In principle, we're trying to maintain workshare in line with equity share, but to maximise all existing resources and cost reductions, we have to consider carefully what is best," says Scaglia.
One possible solution would be to subcontract work back to China, which is STAe's practice with the EC120 helicopter. Earlier plans to contract out the AE31X's empennage to Taiwan have proved to be a political non-starter.
Singapore's interest is primarily in the areas of subsystem integration, such as the auxiliary power-unit and tail cone, the environmental- control system and other vendor-supplied components, says Lim. Actual in-country production would likely be limited to wire harnesses, tubing and control boxes.
For AIA, the problem is a little more difficult. The European consortium's five members already employ sizeable aerospace workforces, which need to be sustained if further job losses are to be avoided in the future. The AE31X is already cynically regarded by some in Europe as a "Chinese take-away", and any perceived erosion in AIA's workshare in favour of AVIC is likely to exacerbate such feelings.
"We fully understand that the Europeans want to keep some jobs. The aircraft's nose section might be cheaper to assemble in Europe because of the need to integrate avionics systems. We're not claiming all the manufacturing-this needs detailed cost study and analysis," acknowledges Tang.
Underscoring the need for a European nose is the prerequisite for cockpit commonality between the Airbus Industrie A320 twinjet and the AE31X.
AVIC's larger share of production could be offset by increasing European design and development responsibility. China has partially accepted this with the decision to appoint a European as programme chief engineer.
Another proposal would extend this share further and give the joint venture overall management and supervisory responsibility for the Xian plant.
TAXING TALKS
Several other important issues still to be resolved before the end of the year include where to register and base the Sino-European-Singaporean venture. AVIC is firmly of the opinion that it should be in either Beijing or Xian, while AIA has been arguing in favour of the financially more liberal former UK colony of Hong Kong.
An important consideration in all of this is circumventing China's 17% sales levy and 3% import duty. AVIC, however, claims that this is "-basically solved", following the Government's recent decision to grant the joint venture preferential tax status modelled on that of the European Airbus system.
"Their main concern was tax. If this is now solved, Beijing can be the headquarters," argues Tang.
One area where the three sides appear already to have reached an accord is in the size of the new family of aircraft. The baseline AE316 will accommodate 105 passengers in an 810mm- pitch single-class configuration, or 95 passengers with the addition of an eight-seat 965mm- pitch business class.
The AE317, stretched by six fuselage frames, will seat 125 or 115 passengers in an all-tourist or two-class layout, respectively.
AVIC's original intention to stretch the series out to140 seats appears to have been dropped in response to the recent market survey. Airlines have indicated that they do not wish to see the aircraft's size go beyond 130 seats and overlap with the longer-range A320 and Boeing 737-700 models.
"It is evident that what we're proposing is in line with real needs and demands," concludes Scaglia.
The survey has also called into question the need for higher-gross-weight 5,200km (2,600nm)-range versions of the AE316/317. The likelihood now is that the family will be extended down in size to close the gap with the upper 84-seat limit of the proposed Aero International (Regional) Air Jet 70 regional-jet series and head off the talked-about MD-95-20 "shrink". As a consequence, weights and ranges are being tailored to accommodate a possible shortened AE315.
Before any of this can come to fruition, AIA, AVIC and STPL must first iron out their remaining differences. The rewards for each are considerable. For Singapore, it secures a much-sought-after role as an East-West go-between. Europe stands, in turn, to cement a strategic alliance with a 21st century economic powerhouse - China. As a measure of its growing importance, today only one in 24 of China's 1.4 billion population flies each year, compared to two flights per person in the USA. This is expected to increase sixfold in the next 20 years, notes Scaglia.
The biggest prize of all is perhaps reserved for China, which after years of endeavour is gaining entry to the world of international aerospace. "Through this programme, the hope is that my son or grandson will be able to follow up and join the club as a fair partner sitting at the table," says Tang.
Source: Flight International
