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2 China's commercial aviation in
take-off mode By Eugene
Kogan
There is a clear understanding in
Beijing that the best way for China to achieve its
ambition in civil aviation - namely to build its
own fleet of commercial craft - is to work in
partnership with Airbus and Boeing, rather than
flying solo or partnering with Russian companies.
Beijing has employed this strategy over the last
20 years or so, working with both Airbus and
Boeing to produce components and subassemblies as
a first step on the long road to manufacturing its
own indigenous aircraft.
Through this
exchange, Chinese aviation technicians were able
to learn a great deal of expertise, and as its
economy expands, China’s importance will also grow
for Western companies as an
important aviation export
market.
According to Boeing’s forecast,
China will demand many more aircraft over the
coming 20 years than Boeing had initially expected
in 2006. Boeing predicts that between 2007 and
2026, China will purchase 3,400 new aircraft worth
US$340 billion, while Rolls-Royce foresees a
demand for 3,100 aircraft over the same period.
As a result, domestic demand on the
Chinese aviation industry to excel and deliver
domestically built aircraft will only increase. In
conjunction with the development of commercial
carriers and civil helicopters, skills in the
Chinese aircraft maintenance, repair and overhaul
(MRO) sector are rising rapidly.
How
Chinese industry will adapt to domestic pressure
remains unclear. What is clear is that it would be
wrong to underestimate the ability of the Chinese
aviation industry to learn lessons from its past
mistakes such as manufacturing low-quality clones
of Western, Soviet and Ukrainian civilian craft,
or foresee an obsolete Chinese aviation industry
infrastructure that is unable to compete on the
global market; likewise, it would be short-sighted
to dismiss the industry as merely imitating Airbus
and Boeing designs.
Partners and not
yet competitors In June 2005, China
Aviation Industries Corporation I (AVIC I) and
Chinese Aviation Industries Corporation II (AVIC
II) signed a contract to be sole suppliers in
China of composite structures for the Boeing 787.
Two years later, in June 2007, Boeing signed
contracts worth $500 million with four AVIC I and
AVIC II subsidiaries to manufacture Boeing 747 and
Boeing 787 components.
In July 2005,
Airbus (Beijing) Engineering Center was formally
inaugurated in Beijing. On June 28, 2007, Airbus
signed a joint venture contract with a Chinese
consortium on the establishment of an A320 Family
Assembly Line in China. The consortium comprised
Tianjin Free Trade Zone (TJFTZ), AVIC I and AVIC
II in Beijing. Construction of the final assembly
line in Tianjin commenced on May 15, 2007, while
production of its first aircraft in China will
begin in August 2008. On November 26, 2007, Airbus
and AVIC II agreed to set up a joint venture
manufacturing center in Harbin. The center will be
established in the first quarter of 2009 and will
produce composite parts for the A350 XWB.
AVIC I and AVIC II The AVIC I
group is a large enterprise that produces both
military and commercial craft. The major civil
facilities include Shanghai Aircraft Industry,
Xian Aircraft Industry Corporation, Shenyang
Aircraft Industry Corporation and Chengdu Aircraft
Industry Corporation.
During his
presidency of AVIC I - which lasted from 1999 to
2006 - Liu Gaozhuo listened very carefully to
officials from well-known US and British aviation
companies such as Boeing, General Electric, United
Technologies Corporation and Rolls-Royce. He noted
the data-driven principles of the Six Sigma
methodology for eliminating defects, "lean
manufacturing", "best practices" and the
imperatives of understanding the customer. Gaozhuo
paid close attention to these aviation officials
because he realized that his task was to prepare
AVIC I to step into the world of these companies
and perhaps one day compete against them.
According to Gaozhuo, although these
efforts have been paying off and AVIC I has made
some improvements, "there is still a long way to
go", (Aviation Week and Space Technology, July 24,
2006), and the leadership of the AVIC I should not
rest on its laurels and become complacent. With an
increased focus on civil aviation and the
manufacture of commercial carriers, the AVIC I
group announced in June 2007 that much of China’s
commercial aircraft industry would be separated
from its military sector and would transition into
publicly listed companies.
Lin Zuoming,
the new president of AVIC I, said that he hopes
that such a move will make it easier for Western
companies to do business in China’s civil aircraft
manufacturing sector. In the past the difficult
issue of technology transfer dominated the
Western-Chinese agenda since Chinese aircraft
manufacturers have usually built both military and
civil aircraft, thus any spin-off of civil
technology might have inadvertently aided China’s
military aviation industry.
Listed
business As a result of the June 2007
decision, AVIC I’s Shanghai Aircraft Manufacturing
Factory operation, which is responsible for the
final assembly of the ARJ21 civil craft, will
become part of a listed company, AVIC I Commercial
Aircraft Corporation (ACAC), whose shares will be
sold in China and on foreign stock exchanges. The
operation of Xian Aircraft Industry Corporation
will be reorganized as a listed business that will
later become the core of a civil manufacturing
group encompassing the civil facilities at the
Chengdu Aircraft Industry Corporation and Shenyang
Aircraft Industry Corporation. On August 28, 2007,
Lin Zuoming, announced that AVIC I had separated
its subsidiaries’ civilian production from their
military production to form Shenyang Commercial
Aircraft (SAC) and Chengdu Commercial Aircraft
(CAC), both with their own management board.
AVIC I’s programs include the manufacture
of the 50-seat turboprop MA60 - of which the
company hopes to sell at least 300 to foreign
customers by 2020 - and the first indigenously
designed ARJ21 regional jet aircraft for the
commercial market. The first aircraft rolled off
the production line on December 21, 2007, in time
for flight-testing to begin in March 2008.
During the 2006 China Air Show in late
October and early November of that year, Russia
offered its assistance in the development of the
ARJ21. Although China has taken on the design and
development of the ARJ21 by itself, it has turned
to 19 foreign suppliers, none of them from Russia.
This was, and still is, a clear signal to Russia
that China is not interested in cooperation as
Russian commercial aviation is not considered by
Chinese authorities to be a serious partner in the
business.
The program seeks to expand its
sales base beyond China, so it could be argued
that the ARJ21, for now at least, is spearheading
China’s ambition to be a global player in the
commercial aviation industry. ACAC plans to
establish a representative office in the United
States, and later a subsidiary, to spearhead its
sales push into the US market. AVIC I is strongly
emphasizing customer service. Now, even before the
ARJ21 takes to the air, a customer support center
has been built in Shanghai and has begun training
operators.
In early November 2006, AVIC I
had confirmed plans to manufacture commercial
craft that could accommodate 150 passengers, thus
putting it in competition with Airbus and Boeing.
AVIC I plans to design the aircraft over the next
five years and fly a prototype in 2011. Beijing
hopes that the country’s first indigenous large
aircraft will be airborne in about 10 to 15 years.
On September 28, 2007, Russian Deputy Prime
Minister Alexander Zhukov said the Russian
aviation industry is interested in joining the
project. The Chinese reaction to Zhukov’s proposal
remains muted since China is not interested in
cooperation with Russia.
AVIC I and AVIC
II may merge part of their commercial aircraft
businesses into one corporation to help China
compete on the global market for large aircraft.
Details are hazy, but the State Commission of
Science, Technology and Industry for National
Defense (COSTIND) is responsible for the plan.
Chinese news sources reported that the National
People’s Congress approved the plan to set up a
corporation for developing large aircraft in
February 2007, and in September 2007 established a
preparatory committee chaired by the COSTIND
Minister Zhang Qingwei and concurrently
vice-chaired by COSTIND Vice Minister Jin
Zhuanglong, AVIC I president Lin Zuoming and AVIC
II president Zhang Hongbiao. This corporation may
be established as early as March 2008, according
to China Times, on January 28.
This
project is an ambitious endeavor and it remains
unclear how it will play out. It appears that the
US and European aviation industries take the
long-term challenge seriously, not least because
the country will be able to draw on the support of
the large demand from its domestic airlines.
Steven Udvar-Hazy, chairman and chief
executive of International Lease Finance
Corporation, said in early March 2007 that both
China and Russia could develop aircraft capable of
competing with the Boeing 737 and Airbus 320
families within 15 years, with government backing
and the technology gained from both companies.
John Bruns, Boeing’s vice-president for China,
stated in clear terms: "It would be naive of us to
think that our two companies [Airbus and Boeing]
are going to dominate this industry forever."
However, Bruns’s statement runs counter to the
opinions of some European and US aviation industry
officials who continue to believe that the Chinese
aviation industry is still lagging behind. These
officials maintain that they will only believe the
Chinese business jet market has arrived when they
see it.
Engines on the
way Alongside the manufacture of the first
indigenous large aircraft, AVIC I aims to deliver
engines with greater thrust than the two main
Western engines: the CFM56 of the French company
Snecma and the V2500 of Canadian firm Pratt and
Whitney. According to Chakar Chahrour, General
Electric's general manager for Asia-Pacific
commercial operations and sales: "Within 20 years
China will be building its own engines." For the
time being, the manufacture of indigenous engines
remains the weakest link in the chain.
In
early August 2007, it was reported that Xian
Aircraft Industry Corporation, a manufacturer of
the MA60, plans to develop a 70-seat regional
craft, designated the MA700. The aircraft will
increase the company's capability to compete with
70-seaters from Europe's ATR and Canada’s
Bombardier.
ACAC has another plan for
breaking into Western markets, which relies on
Bombardier. In June 2007, AVIC I and Bombardier
disclosed at the Paris Air Show that the Canadian
company is to partner with ACAC on the ARJ21-900,
a 105-seat stretched version of the ARJ21-700, and
is investing $100 million in the project. AVIC I,
meanwhile, has agreed to invest $400 million into
its aircraft enterprises to prepare them to work
on the planned Bombardier CSeries of 110-130-seat
carriers.
AVIC II, on the other hand, is
made up of the following civil manufacturers:
Harbin Aircraft Industry Group, Hongdu Aviation
Industry, Shaanxi Aircraft, and Shijianzhuang
Aircraft Industries. In addition to civil aircraft
it also manufactures helicopters.
AVIC II
president Zhang Hongbiao said the group intends to
make a major push into general aviation, with
plans to merge its subsidiaries Harbin Aircraft
Industry Group and Shijiazhuang Aircraft
Industries. He added "Hongdu Aviation Industry
will also be brought in." Following the latest
split of the civil and military businesses within
AVIC I, Zhang Hongbiao also said: "We want to
separate the civil and military" aspects of
Shaanxi Aircraft.
He added, however, that
"it does not mean we will combine the civil
[business] of Shaanxi Aircraft and Harbin
Aircraft", according to a Flight International
report last September. Thus, it remains unclear
what kind of organizational structure the
commercial sector of AVIC II will establish.
Even though AVIC II is the smaller of
China’s state-owned aviation groups, it
participates in building the Brazil Embraer ERJ
145 under license as an important element in its
commercial future. Harbin Embraer, a joint venture
of AVIC II’s Harbin Aircraft Industry Group, Hafei
Aviation Industry and Embraer, launched a licensed
production program for ERJ 145s in China in
February 2004. According to AVIC II vice president
Liang Zhenhe, the ERJ 145 has been worth between
$800 million and $900 million for the company.
During the 2006 China Air Show, mentioned
above, AVIC II suggested that the civil
helicopters inventory would increase from about
140 at year-end 2005 to 2,763 by 2026. Liang
Zhenhe also noted that demand will be driven by
security services, the energy industry and
environmental monitoring agencies. The 2008
Beijing Olympic Games and 2010 International Expo
in Shanghai will also be contributing factors. The
proposed boom in helicopter production may also be
accompanied by the opening of more maintenance
facilities and increased pilot training. Whether
helicopters will be largely produced by the
Chinese enterprises or by Western companies such
as Eurocopter and Sikorsky remains to be seen.
Shaanxi Aircraft and the Antonov design
bureau are establishing a Beijing Engineering
Center with 50 engineers, about half from Shaanxi
Aircraft. The center is to work on the Shaanxi Y-8
derivative of the An-12 and the Y-5 derivative of
the An-2 transport aircraft, as well as new 30-ton
and 60-ton cargo aircraft.
To conclude, it
is important to remember that the final structure
of the Chinese aviation industry has not yet been
put in place and everything remains in flux. At
the same time, the Chinese aviation industry is
developing rapidly, and changes within the
industry structure demonstrate the determination
of the government to build a first-rate enterprise
capable of competing with both Airbus and Boeing.
The goal of building an indigenous
commercial carrier is no longer a hypothetical but
a reality. The difficult question that China’s
industry executives will have to face is whether
they can develop an aircraft that is good enough
to win out against the best that Airbus and Boeing
can deliver. Timely delivery of the aircraft, its
reliability and - as a result - the trust of the
public to fly in such a carrier, together with
first-rate customer service support are the key
areas that need to be thought through carefully
and monitored from start to finish.
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