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SCMP Reporter

THEIR last-ditch sales pitches made, the world's top three aircraft manufacturing groups are eagerly awaiting a decision on which of them will be chosen by China to help build a new-generation 100-seat jet.

  But a curious question asked at a high-level aviation conference and exhibition in Beijing last week was whether the two losers could care less about losing.

  The answer to that question, not just a few cynical industry analysts say, is an adamant: No.

  As one put it: 'Why's that? Easy. Nobody really expects this thing to work.'   The highly touted 'thing' in question is the AE100, with AE meaning Asian Express and the 100 standing for a twin-engine jet of about 100 seats, possibly up to 120.

  The estimated US$2 billion project was scheduled to start early next year with the hope the first aircraft would get off the ground by the turn of the century.

  The project is being managed by a joint venture between the mainland's 560,000-employee Aviation Industries of China (AVIC) and South Korea's Samsung Aerospace Industries.

  But the two are looking for another risk-sharing partner to help make the project a reality.

  The world's top manufacturers are fighting desperately to be that partner, last week trying to out-do the others by wining and dining top Chinese officials in a bout of last-minute manoeuvring.

  But there is a catch.

  The partner would have to agree to certain terms such as freely offering technology, taking a stake in the project no larger than 20 per cent, agreeing to full production on the mainland and generally taking a back seat throughout.

  AVIC selected its South Korean partner last April and said the final helper would be selected by last month, after bids were tendered in early September.

  At least three bids were received.

  Boeing and McDonnell Douglas of the United States put in separate bids while some of Airbus Industrie's partners - Aerospatiale of France, British Aerospace, Italy's Alenia and Germany's Daimler-Benz Aerospace Airbus - tendered a joint bid to spread the high risk.

  However, when the selection deadline came and went with no announcement and no explanation, more questions began to be added to the already long list concerning the viability of the project.

  Last week, when AVIC president Zhu Yuli was questioned about the AE100 after speaking to delegates at the Beijing conference, he appeared to brush the delays off as nothing worrying. 'We find it more difficult [than expected] for us to select the right fiancee,' he said. 'We hope by the end of this year we can make our final decision.'   While a delay of a few months should not be a cause for major concern normally, in this project it takes on added weight, mainly because it is not the only setback to date.

  Some of the European partners have been haggling among themselves, causing the German partner to pull out and casting doubt on the viability of the bid of the remaining partners.

  There have also been reports the Chinese and South Koreans are in dispute over the location of the final assembly line. That was the same complaint of the Germans: they wanted part of the production to be done in Germany but China was adamant about wanting to be in control.

  The Europeans also wanted to take a stake larger than 20 per cent - some claim as much as 60 per cent - but a one-fifth share was reiterated in no uncertain terms by Mr Zhu in Beijing.

  Assuming the Europeans will be turned down, leaving Boeing and McDonnell Douglas in the running, Boeing is seen as the most likely winner.

  Douglas is seen as an unlikely contender, in part due to haggles with the Civil Aviation Administration of China (CAAC) over the terms of its Trunkliner programme. The initiative was launched under an agreement signed in 1992 to produce jets in China to serve its trunk and regional airline routes.

  But does Boeing truly want to win? It will have to give up some of its valuable technology in a project that few expect to generate a return and which would possibly leave the company in a situation where it will be helping a company build something that one day might compete with its own products.

  According to Mike Zimmerman, president of Boeing's China subsidiary, the company was 'committed to the project' and had no doubt it would come to fruition.

  So much for the public relations.

  The real answer, however, may be interpreted from one given at a press conference last week.

  When asked whether Boeing would, if rejected by AVIC, try to build such a jet on its own, Mr Zimmerman said it was highly unlikely.

  'We already make an aeroplane with around 100 seats,' he said.

  And it is not the only one.

  Airbus Industrie produces the A319, typically with 110 to 125 seats. Fokker of Europe makes a 100-seat jet, too, and there are several other similar aircraft on the market built in various parts of the world. The skies are getting crowded with 100-seater aircraft.

  At last week's aviation conference, speaker after speaker with a vested interest in the AE100 talked of the great sales potential of such an aircraft. They said about 3,000 were expected to be bought over the next 20 years, most of those in Asia.

  But all said if it wanted to make money, the AE100 would have to be the most fuel-efficient jet ever built. One European delegate said it would have to be 10 to 15 per cent more fuel efficient than anything flying to-day.

  A difficult task - modern-day jets drink about the same fuel per seat as the average car, and there are doubts about how much better they can get.

  The research and development costs alone are massive, and the major manufacturers offering such products have spent years recovering their costs.

  They also have world-wide marketing, sales and distribution networks already set up - years in the making.

  Few expect the AE100 to ever turn a profit, including an Airbus official who has publicly doubted its worth despite the fact that some of the consortium's four European partners are in the competition.

  Vice-president for strategic planning Adam Brown said at a March press conference in Hong Kong: 'The real big requirement in the Asia-Pacific is for a new large aeroplane, an aeroplane that is bigger than anything flying today.

  'Whatever one may say about the market for 100 seaters, it is certainly not an Asia-Pacific market.'   Mr Brown argued that the market remaining for any aircraft of less than 150 seats had diminished to the point where the costs to develop a new one were unlikely ever to be recovered. Given the uncertainty over the project's worth and the growing problems encountered before it has even formally begun, the question is why anyone would want to be associated with it.

  The answer, most say, is that China wants desperately to be a manufacturer and it has the clout to cause the big players of the world to get on their knees and kiss its feet.

  The real dollars in the game will come from getting closer to China and hopefully winning new aircraft orders, the manufacturers privately admit.

  With air travel in China forecast to grow faster than anywhere else over the next two decades, the country is in dire need of new aircraft.

  About 1,300 new jets are forecast to be needed over the next 20 years, valued at an estimated US$100 billion.

  With the global market depressed for so long, the enormous potential is viewed as reason enough to invest in a dud project in the hope that higher returns will be in store.

  A high-risk game in a high-stakes market.



Bottom line too high for plane makers