Competition in the Friendly Skies?

I was reading about China yesterday and I came across something very interesting. China, which has been a relative backwater as far as the airline industry is concerned, is now stepping up efforts to rival the world's largest airline manufacturers. That's right Boeing! Be advised Airbus! The name of the jet is C919, but it is still in developmental stages and likely will not be rolled out until 2014. Still, this development is significant in terms of international business.

First of all, it is a display of China's increasing capacity to shift from lower tech consumer goods to higher tech consumer goods. In this respect, China is following the lead of "tiger economies" in the region such as South Korea, which has made a shift from lower tech consumer goods to a market of high quality electronics, vehicles, and computers. China still has a long way to go, but this development shows the potential that remains untapped.

China has made it clear that this is a strategic decision as well as a business decision. China hopes to field the C919 for primarily domestic use but also for sale on the global market. It is yet to be determined what kind of effect this will have on American manufacturer Boeing and European manufacturer Airbus, but it is likely both are paying heed to the developments occurring in Beijing.

At this stage, the manufacturer has made some pretty bold claims. First of all, he said that the C919 will be superior in terms of fuel efficiency than planes the same size, such as Boeing 737 and Airbus A320. Additionally, the C919 will be marked down below the going price of its future competitors. I think this could be very significant for several airlines, which in a struggling market are in need of updating their fleets and improving quality while maintaining or reducing expenses. I am curious how this will play out over the next decade and to what extent China will shop their C919.

Despite these boasts, many analysts and think tanks question the likelihood of such claims. They concur that the cheaper labor market does not necessarily equate to cheaper planes, as materials costs usually make up the lion's share of expenses. Also, analysts claim that China's investigation using composite materials instead of steel (to boost fuel efficiency), likely will not come to fruition as rivals Boeing and Airbus have delayed similar projects citing little difference in efficiency.

Success or not, I feel this project will have a significant impact on China, if not the global community. With a rising Chinese middle class, the airline industry is booming. If anything, the C919 can be a huge boon to domestic airlines as the demand for airline travel in China is currently and likely to remain high. I, among others, hope to have a front row seat as this development unfolds!