Analyzing China's increasingly favorable environment for corporate aircraft use
By Richard Aboulafia
VP, Teal Group
Gulfstream V arrives at PEK (Beijing, China). Beijing is slot constrained, so developing alternative business aviation airports is essential.
Over the past few years China's business aircraft market has enjoyed sudden and strong growth, in sharp contrast to the slumping markets found in developed countries.
While numbers are not yet big enough to offer more than token relief to beleaguered Western manufacturers, there are sound reasons to believe that wealth creation and airspace liberalization will continue to stimulate a very promising new market.
Mindful of this impressive opportunity, China's state-owned aerospace industry has followed the market's growth, with plans for its own jets. These may be indigenous, or codeveloped with Western manufacturers. A comparison with China's jetliner manufacturing efforts implies a very long and slow road for Chinese industry.
A sudden growth market
A few years ago, China was a complete backwater as far as business aircraft were concerned. Today, it offers fast growth rates, with enormous potential due to wealth creation and regulatory changes.
Only about 150 business jets are registered in China, compared with well over 10,000 in the US. But this is up from fewer than 100 just 2 years ago and only a few dozen in 2006. There are signs that this sudden growth is accelerating.
Dassault, whose jets compete solely in the top half of the market, said recently that 2011 would see China become its largest single market country for the first time. The French company also claimed that its China sales in 2011 would surpass sales in the US and Europe combined. Dassault also claimed that 3/4 of Chinese orders were for its top-of-the-line Falcon 7X.
The economic drivers are clearly there. In Oct 2009 Morgan Stanley pointed out that China's $4.4-billion GDP was roughly the same as that of Latin America. In that year, Latin America had 1160 registered business jets, while China had 100. Today, 3000 people in China have a personal net wealth of over $500 million, and there are 130 billionaires.
Other circumstances are also promising. China's geographic size is similar to the US's, and there are scores of cities with populations above 1 million. Ground transport infrastructure is developing fast, but is still relatively undeveloped. Airline service is generally mediocre.
The key impediment to business aviation in the past has been China's airspace regulations. The country's airspace has been under tight control by the military, and flightplans need to be approved well in advance.
Yet in Sep 2009 China's government announced a big reduction in flightplan advance filing requirements (for Chinese-registered aircraft) from 1–3 weeks to just 3 hrs. They also slashed filing fees and aircraft purchase tariffs to 6% (down from the previous 23% of aircraft price).
There has even been progress in clearing private helicopter flights in low-altitude airspace. In Jan 2011 China began a small private helicopter program—the first of its kind—on the island of Hainan. Four helicopters, each flown by 2 pilots, took part in a 2-month experiment.
Minsheng Financial Leasing (MSFL) ordered $1.2 billion worth of Dassault Falcon jets. (L–R) Dassault Chairman & CEO Charles Edelstenne, Chairman Emeritus Serge Dassault, Dassault Falcon Pres John Rosanvallon, MSFL VP Zhang Bo and Chairman Kong Linshan during last year NBAA Convention in Las Vegas.
China's total trial areas currently cover nearly 32% of airspace over land. Airspace liberalization is clearly having a profound impact on market growth, and yet many other impediments to business aircraft adaptation remain.
The biggest is a serious lack of FBOs and centers for maintenance, repair and overhaul (MRO). All of these are necessary to make business jet operations as seamless and appealingly easy as in the developed world. Also missing is the necessary infrastructure of broker dealers, title and registration people, and other elements that make jet transactions relatively simple.
Another problem is airports. On the positive side, there are about 150 airports accessible today for business aircraft, with about another 100 planned to open by 2020. Yet several key airports, like PEK (Beijing) are slot constrained.
It will take time to develop links to alternative airports that are near major centers—the Chinese equivalent of a TEB (Teterboro NJ) or VNY (Van Nuys CA). And almost everywhere private aircraft parking space and hangarage are in short supply.
On the positive side, if China opens its airspace completely to foreign and domestic-registered jets, there would likely be profound consequences for demand in the rest of Asia. Many Asian manufacturers in higher-cost economies such as Japan, Singapore, South Korea and Taiwan look to China as a source of lower-cost manufacturing.
Basically, Asian businesses located in high-cost manufacturing countries could emulate their US and European equivalents, looking to private aviation as they follow an integrator model of manufacturing.
Since most of these high-cost countries are within range of even midsize business jets, there would be a ripple effect from China market liberalization, boosting jet demand throughout the region.
Big industry plans—maybe
Chinese MA60 turboprop regional passenger aircraft. While planes in this class are relatively easy to design and manufacture, product support has been a serious challenge for Chinese industry.
With all this market potential, China's government and aircraft companies (which are basically the same) are belatedly realizing that they need to act fast if they want to harness national demand to create a local industry.
Just as China has aimed to create a national jetliner and high-speed train manufacturing capability, Aviation Industry Corp of China (AVIC) has begun looking at possible paths to business aircraft development and manufacturing.
Two AVIC companies have been established to meet this goal. Smaller aircraft will be the responsibility of AVIC General Aircraft, or China Aviation Industry General Aircraft (CAIGA). Larger jets will be handled by AVIC Aviation Techniques (AAT), formerly part of AVIC Defense.