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Market Focus : U.S. Aircraft Firms Compete on China 'Trunkliner' Deal : The venture to build passenger jets would be worth up to $4.5 billion over 10 to 15 years. Boeing and McDonnell Douglas are battling for the plum.


BEIJING — The Chinese government is preparing to choose a U.S. partner for a 150-aircraft co-production venture that would upgrade the Chinese aerospace industry and perhaps make it a major supplier of components for American jetliners.

Waging battle for the deal, estimated to be worth at least $4.5 billion over 10 to 15 years, are Boeing Co., currently the largest supplier of aircraft to China, and McDonnell Douglas Corp., already involved in a co-production venture in Shanghai.

This "Trunkliner" project, initiated by China with a request for co-production proposals to fit its specifications, would provide aircraft for expansion of passenger services by the Civil Aviation Administration of China (CAAC). But an even more important goal, Chinese officials have said, is infusion of U.S. technology.

The two American firms have been told that a decision on which one is favored will come soon. Further negotiations with the front-runner, however, would be necessary before a final contract could be signed.

The project reflects "the strong Chinese desire for themselves to have the best science and technology in the world in the area of aviation," commented a Beijing-based analyst who spoke on condition that he not be further identified. "They're trying to achieve a certain level of science and technology. That is their standard in measuring their level of performance. It's not an economic standard."

Under both companies' proposals, the 150 aircraft would be assembled over a period of 10 to 15 years, beginning in 1996, at the Shanghai Aviation Industrial Corp.'s main factory in Shanghai. All the planes would be purchased by CAAC.

McDonnell Douglas is currently engaged in co-production of MD-82 jetliners at the Shanghai facility under a contract signed in 1985. Twenty-two MD-82s have been assembled there, with 23 more of these 147-seat aircraft due to be built before the contract expires in 1994. The total value of this project is about $1 billion.

The Shanghai factory makes the doors for these jetliners, and it has begun making horizontal stabilizers, which form part of the tail. A factory in the central China city of Chengdu has started making nose sections that will go into some of the yet to be assembled airplanes. But most components are simply shipped in from the Douglas Aircraft Co. division of McDonnell Douglas in Long Beach.

Chinese input, primarily labor on the airframe, contributes about 10% to 15% of the value of the MD-82s produced in Shanghai, according to Gareth C. C. Chang, president of McDonnell Douglas Pacific & Asia Ltd., which oversees the corporation's activities in China.

McDonnell Douglas is paid by its Chinese partner, the Shanghai Aviation Industrial Corp., both for the components shipped from Long Beach and for technical assistance in Shanghai, Chang said. The Chinese company then sells the finished jetliners to CAAC through a government supply firm.

If McDonnell Douglas wins the nod for the Trunkliner project, it proposes to build MD-90 twin-jet aircraft with engines from International Aero Engines AG, a five-company consortium led by United Technologies Corp.'s Pratt & Whitney Division and Rolls-Royce.

The MD-90 will have a longer fuselage than the MD-82, a more fuel-efficient engine and more advanced avionics. The version built in China would also have landing gear specially designed to spread the airplane's weight across more wheels, thereby avoiding damage to thin-surfaced runways.

Boeing is proposing its twin-engined 737-300 model, with engines by CFM International Inc., which is a joint venture of General Electric Co. and Snecma of France. Both companies' planes would seat about 160 passengers.

Under both proposals, aircraft factories in various other cities around China, which until now have been involved primarily in military production, would make parts for the jetliners assembled in Shanghai. Aircraft design modifications, which form part of both proposals, are intended not only to customize the aircraft to China's needs but also to provide opportunities for Chinese engineers to learn more about aircraft design.

China's initial specifications for the project required that Chinese input comprise at least 51% of the value of the finished aircraft, although there seems to be some flexibility on this point. China also wants the deal to include exports of Chinese components for use in aircraft assembled in the United States, which would help it cover some of its costs. This means that an important part of the project would be for the U.S. company to assist Chinese factories in upgrading their ability to make top-quality components.

Under Boeing's proposal, a factory in Xian would build the 737-300's fuselage, most of the tail would be made in Shenyang and a Chengdu factory would make the nose, according to Stephen Wong, Boeing's manager for business with China. Other major components, including the wings, would be imported, and the airplane would be assembled in Shanghai.

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