POSITION & HOLD
an editorial opinion

China speeds up bizav growth




One of 4 Eurocopter EC225s operated by China Rescue. A shortage of rescue helicopters was blamed for many of the deaths in the Sin­jiang earthquake of 2008.

Engine makers are also getting into the act. Pratt & Whitney has bought 20% of Xi'an Airfoil Technology and 49% of Zhuzhou South Pratt & Whitney Aeroengine. And Turbomeca parent Safran Group has bought 85% of Snecma XinyiAirfoil Castings, which produces low-pressure turbine blades, nozzle guide vanes and low-pressure turbine seals for the CFM56.

These are critical learning opportunities for Chinese manufacturers. High-bypass engines are a major gap in the country's technological portfolio.

Even NetJets has announced a joint venture in China. The company will team with 2 Chinese investment groups—Hony Jinsi Investment Management (Beijing) and Fung Investments—to form NetJets China Business Aviation. At least in the beginning, the company will specialize in aircraft management rather than fractional leasing.

Sailplane pilots call it 'lift'

There is a good deal of turbulence in China these days—economic, political and organizational. It may slow the development of Chinese business aviation, but probably not severely.

On the economic front, evidence suggests that China's long-running boom is finally beginning to slow. GDP growth is down, and both exports and imports rose much less than expected in April.

Industrial output grew 9.3% in April compared with a year earlier. By Western standards, this would be great performance—yet it was lower than all 32 estimates by economists polled by Bloomberg News. It was the weakest showing since at least 2009.

None of this spells real trouble for business aviation. Bombardier's sunny forecast for the industry assumed GDP growth averaging just 6.7% for the next 20 years, well below the country's accustomed double digits.

Challenger 300 owned by Donghai Jet lands at SZX (Shenzhen, China). Bombardier estimates that nearly 2400 bizjets will be delivered in China by 2030.

Yet it suggests that the corporate profits that support bizjet acquisition may be a little slower in coming than Chinese executives are used to.

Politically, things seem rather shaky, especially by the standards of a government accustomed to being in firm control. There has been a rush of Chinese businesspeople and politicians seeking to emigrate to the West.

In 2011, no less than 75% of people applying for EB5 visas to the US were Chinese. The EB5 program eases the way for wealthy immigrants who commit to investing at least $1 million in the US and creating 10 full-time jobs within 2 years (or $500,000 and 5 jobs in rural or high-unemployment areas).

The flow has reportedly increased since the ouster in February of Bo Xilai, the former Communist Party chief in Chongqing. It has been an uncomfortable few months in Beijing.
"There's definitely a surge in China for what I call 'let-me-out-now' product," reports Jean-François Harvey, an immigration lawyer based in Hong Kong.

He filed 16 applications to St Kitts in 2 weeks of late April and early May, compared with only 1 or 2 a month in the past.

This is troubling. In foreign lands, a sudden rush of the rich to protect their wealth and families by moving elsewhere often indicates coming instability.

China also has a chicken-and-egg problem. Buying a business aircraft seems pointless if there is nowhere to fly it or get it serviced. Yet it makes little sense to invest in an FBO or MRO if there are no aircraft to provide a market.

As Teal Group VP Analysis Richard Aboulafia has noted, "the biggest [impediment to business aircraft adoption] is a serious lack of FBOs and centers for maintenance, repair and overhaul."

The new 5-year plan should ease this difficulty. Construction of new airports and government support for FBO organizations will eventually make it easier for Chinese executives to get the benefits that business fliers in the West take for granted.

Unfortunately, how long this process will take is unclear, given how much needs to be done. China's aviation industry, like the rest of the country, is rushing to modernize a system that was never designed for the 20th century, much less the 21st.

Cessna faced unfamiliar challenges when the company tried to display a Caravan at ABACE 2012. It was a struggle to get an arrival slot at SHA (Hongqiao, Shanghai), but skeptical controllers finally granted them a late-night entry. Then the company had to convince the tower at the plane's home airport near Shanghai to stay open until its takeoff time.

In the US or Europe, fitting a small aircraft into a busy airport is routine. In China, controllers are still not sure it can be done without disrupting the flow of jet traffic.

Marvin Cetron is a forecaster and futurist. He has carried out studies for about 450 of the Fortune 500 companies, as well as numerous trade associations and government agencies. Cetron was an adviser to the White House from the days of President Kennedy through the 2nd Clinton administration.


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