Analyzing China's increasingly favorable environment for corporate aircraft use
AC313 helicopter. China has used technology transfer, largely from Eurocopter, to start developing a wide variety of models to meet local needs.
The second notable difference is that, while the jetliner business has 2 prosperous manufacturers (Airbus and Boeing), the business jet industry is plagued by serious overcapacity.
Six traditional business jet players are in that market, and 4 of these play in the slumping small and midsize segments. More business aircraft players are trying to enter the jet industry with new designs.
A key result of these 2 differences is overcapacity. Beleaguered bizjet players are more eager to work with China, and to transfer technology. They may also be more willing to sell their operations to China altogether.
While Airbus and Boeing and their supplier base carefully guard against intellectual property (IP) theft, IP is selling relatively cheap in the bizjet world. It's telling that Gulfstream, the healthiest and most successful Western business jet prime, has stated publicly that it has no interest in working with AAT on its bizjet coproduction/development program.
Another key difference between the 2 markets is that jetliners are a commodity product, while business jets are a luxury product. As long as a jetliner performs routes with good fuel economy and productivity, and with a high standard of reliability and safety, and as long as pricing and financing are in line with Western standards, airlines will give them a fair hearing and consider buying them.
By contrast, business jet sales depend on such intangibles as customer perception and loyalty, and overall brand image. AVIC (and therefore AAT and CAIGA) are government-owned, and it would be an extremely unusual development if a government company succeeded in creating a luxury product with genuine cachet and market appeal.
In fact, this is one of China's key economic weaknesses. It has yet to create a meaningful number of national brands. Lenovo, the rebranded IBM personal computer company, has had relatively little success in the world PC market.
Chinese car companies have a lower share of their national market than any other major country's domestic car company or companies. China has instead emphasized production of things that either don't depend on brands, such as ships, or products sold under different brands, such as Apple iPods.
Also, the jetliner and bizjet markets are quite different in terms of structure and composition. One type of jetliner—a 150-seat domestic market trunkliner, for example—can have extremely broad relevance to any nation's airline market.
Two trunkliner families—Airbus's A320 series and Boeing's 737 series—account for more than half of total world jetliner output by value. By contrast, business aircraft occupy dozens of price points from $3 million to $70 million. Building a single model, or even a family of 2 or 3 models, will only satisfy a relatively small slice of the total demand spectrum.
It will be very difficult for AAT and CAIGA to attack more than a small part of this market. It will also be very hard for China to enact trade barriers that keep out imported jets which address the price points that AAT and CAIGA don't address.
To its credit, China's government is moving to drop import barriers to imported business jets, raising the question of how they will "protect" domestic producers as they develop new national aircraft.
One key similarity between business jets and commercial jetliners is that manufacturing is just the start of entering these markets. Designing and producing jets are big challenges, but standing up large sales, marketing, product support and finance organizations is difficult too. China is good at certain types of manufacturing, but its experience with the less "hard" aspects of an aircraft program is relatively minimal.
Given the challenges, and if China's jetliner manufacturing experience is any guide, China's efforts to satisfy its growing local bizjet market needs with indigenous products will face serious challenges. But given the huge opportunities associated with business aircraft infrastructure development in China, the real winners might not be jetmakers anyway.
Richard Aboulafia is VP Analysis at Teal Group Corp, an aviation and defense market intelligence and consulting company. He has tracked the business aircraft market for over 20 years.