Introduction

China is a strategic marketplace for Airbus. China's GDP has grown at more than seven percent for the past decade and with a huge market potential, China is expected to become the world's largest aviation market after the United States. Airbus has three subsidiaries, in the United States, China and Japan, so you can find how much we pay attention to the Chinese market.

In the coming 20 years, China's air traffic is growing rapidly and may need 1,790 aircraft above 100 seats by 2022. The Chinese market is surprisingly unaffected by external world events. We are in China for the long-term, and our goal is to take at least 50 percent of the market shares. We are eager to be part of China's great success story.

Matching Market Needs

This large diverse market would need 1790 aircrafts by 2022, of all sizes and capabilities. Domestic traffic is expected to continue to account for the largest portion of traffic in the next 20 years. Trunk routes between cities such as Beijing, Shanghai and Guangzhou will require optimized medium range twin aisle aircraft like the A330. The largest demand category will be 100-200 seats like the A320 family flying domestically. Growing international traffic, bolstered by the Olympics in Beijing and the World Expo in Shanghai would be partly accommodated by airlines flying the A380s into China. The rapidly growing freight operations out of China are also now stimulating much interest in the A380F, by airlines both in China and overseas. The A320 family is firmly established in China. The A319 has successfully gone into operation at several high altitude airports in the country, allowing further development of the domestic network into remote regions.

200-250 Seat Market

Airbus is optimistic about this market segment, which was originally started 30 years ago with the early versions of the A300. We continue to review the best way to serve the airline's needs in this area, and our conclusion is that the A350 and the A330-200 remain the optimum combination to meet the very different range requirements of the medium capacity sector. Both aircraft are in extensive use in Asia, including China, and frequent re-orders by operators confirm their 'best in class' status. On a worldwide basis, the A350 and A330-200 now dominate a market, which had previously been served with competitor products. Despite much current focus on this middle market segment by a potential competing project, Airbus is highly confident that the economics of the A330s and A350s will remain unchallenged.

Olympics

The 2008 Olympics also give a stimulus to aviation development, and we believe the 555-seat A380 is the most ideal vehicle to transport tens of thousands of athletes and sports fans to Beijing. A380, the flagship of the 21st century will make its important contribution to the fast development of the aviation and tourism markets.

Customer services

In China, we are not only selling aircraft, but also making efforts to provide the No. 1 training and support services.

The CASC/Airbus Customer Services Training and Support Center, which represents a US$80 million investment by Airbus, is fully operational in Beijing.

We have also designated customer support managers and representatives for all operators, and they regularly visit the airlines to ensure the perfect performance of Airbus aircraft and provide operational analysis. The customer services department provides on-site technical support to airline operation in 20 Chinese cities, including Beijing, Chengdu, Fuzhou, Gansu, Guangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen and Xi'an etc.

In addition, Airbus regularly holds seminars on flight operation, maintenance, material and management and other fields with CAAC and airlines with a purpose of sharing experiences and providing technical expertise.

In order to improve safety and management standards, Airbus has developed a number of state-of-the-art software tools, such as Less Paper Cockpit (LPC), Airbus On-line Services (AOLS), Fight Operation Monitoring (FOM) and Airman. Some systems have been widely introduced into Chinese airlines.

Cooperation

We are committed to the development of aviation in China. Our cooperation with China is carried out in three levels, with regulators such as General Administration of Aviation of China (CAAC), with airlines and with aviation industry manufacturers.

Airbus sees opportunities to further develop its industrial cooperation with the Chinese industry and to integrate new suppliers in its network. Four Chinese manufacturers, in Shenyang, Xi'an, Chengdu and Guizhou, are already involved in manufacturing parts, such as wing components, emergency-exit doors and maintenance tools for Airbus aircraft.

Airbus will significantly increase its industrial procurement from China in the coming years. Airbus' procurement from China will reach an annual volume of $ U.S. 60 million by 2007, and plans to double this volume to $ U.S. 120 million by 2010, including a substantial amount of A380 work.

On April 21,2005, Airbus and China Aviation Industry Corporation II (AVIC II) have agreed to set up an engineering center in the form of joint venture in Beijing.

Chinese Premier Wen Jiabao and former French Prime Minister Jean-Pierre Raffarin attended the signing ceremony at the Great Hall of the People in Beijing.

On June 14, 2005, Airbus and China Aviation Industry Corporation I (AVIC I) have signed an agreement at the 46th International Paris Air Show Le Bourget for AVIC I to become a new partner of Airbus' Engineering Centre in China. The Airbus Engineering Centre is to be located in the Tianzhu Airport Industrial Zone, adjacent to the offices of Airbus China. Dr. Gustav Humbert, President and CEO of Airbus, in the presence of Jose Luis Rodriguez Zapatero, Prime Minister of the Kingdom of Spain inaugurated Airbus (Beijing) Engineering Centre on 21st July 2005 in Beijing. The facility will in particular perform aircraft specific design work for the A350 program at the beginning. There are ramp-up plans to increase engineers for the Engineering Centre up to 50 by the end of 2005 and up to 200 engineers by 2008.

The setting up of the centre further enhanced and developed a close relationship between Airbus and the Chinese aerospace industry, with a view to China becoming a full risk-sharing partner in a future Airbus programme for new generation aircraft. A risk-sharing partner takes complete responsibility for a part of a program, from design to manufacturing, including the corresponding investment and profit sharing.

Airbus and China Aviation Industry Corporation I (AVIC I) have agreed to enter into the third phase of the A320 Family Wing Cooperation Program, which comprises the production of wing box. On April 21, 2005, the two sides signed the initial contract to launch the A320 Family Wing Box work package in China. This covers the assembly work of the first batch of wing boxes and the corresponding tooling, involving a contractual value of $ U.S. 70 million. Chinese Premier Wen Jiabao and former French Prime Minister Jean-Pierre Raffarin attended the signing ceremony at the Great Hall of the People in Beijing.

On November 9, 2005, China Aviation Industry Corporation (AVIC 1) and Airbus signed a protocol to confirm the extension of their cooperation in activities to produce A320 Family wing boxes in China. The protocol was signed in London during Chinese President Hu Jintao's official visit to Britain. Iain Gray, Airbus General Manager and Yang Yuzhong, Executive Vice President of AVIC 1, signed the protocol in the presence of the Chinese President Hu Jintao and British Prime Minister Tony Blair. The protocol refers to the initial contract, with a projected total value of over US$ 500 million, signed in Beijing earlier this year between Airbus and AVIC 1, which committed the parties to the third phase of the A320 Family Wing Cooperation Programme, comprising the production of wing boxes and now also including the management of a second tier supply chain.

Today, over 3,880 Airbus aircraft are in operation with 240 operators worldwide. Half of the Airbus worldwide fleet has components produced in China. Airbus is looking forward to carrying out more projects with Chinese aviation industry partners.