Peking into the future

Posted on 2 Mar 2010 by The Manufacturer

Edward Machin considers the effect of a growing Chinese commercial aviation market.

According to figures released by Boeing, a staggering two billion passengers travel annually on commercial flights, a figure increasing 5% year-on-year. To satisfy such demand, aviation companies globally are expected to spend $3.1tr in buying 28,600 aircraft over the next 20 years, the majority of which will be jumbo jets, defined as those with more than 150 seats.*

Perhaps unsurprisingly, China is seeking to establish itself at the forefront of such developments, according to several reports. Positioned as the world’s second largest market for commercial aircraft, it is projected to purchase up to 2,800 passenger planes over the next two decades at a cost of approximately $340bn, says Matthew Knowles, head of media relations at ADS, the trade organisation for the UK’s aerospace, defence and security industries.

Coupled with government procurement incentives that favour homemade products, however, has been China’s growing interest in developing an indigenous large passenger aircraft. This project germinated as early as 1970, with R&D completed on the Yun-10, a 170-seat aircraft comparable to the Boeing 707.

In May 2008, Beijing’s State Council formed a company, The China Commercial Aircraft Company (Comac). The organisation is responsible for design, development, and manufacturing of large-bodied commercial aircraft and helicopters — as well as engines and other airborne systems. The key metric of such projects’ success, says Mark Stokes of The Project 2049 Institute, will be “Comac’s ability to gain international airworthiness certification, which would require the cooperation of Boeing, Airbus and the US Federal Aviation Administration FAA.”

As such, the centerpiece of China’s aviation vision is the C919, a 168-190 seat narrow-body aircraft which represents the largest commercial aircraft built by a Chinese company in the country to date. Unveiled as a scale model at the Asian Aerospace 2009 trade fair, design and assembly of the C919 will take place in Shanghai, with deliveries scheduled for 2016. Initial production will utilise foreign-manufactured engines — from Safran and GE — and avionics, with 47 manufacturers in the C919’s current supply chain.

Nonetheless, Comac ultimately seeks to equip its wider fleet, namely the C-929 and C-939 aircraft, with home grown engines. “China’s aviation industry has gradually accumulated expertise in engine development and manufacturing,” says Stokes. “However, the experience has been almost exclusively associated with military programmes, such as the Russian AL-31 engine used on the Su-27 and the Chinese-built WS10A engine that powers the J-10 fighter.”

In a move towards the civilianisation of its aviation industry, the State Council directed the formation of Shanghai-based AVIC Commercial Aircraft Engine Co (ACAE) in January 2009. Xinhua News Service reported that AVIC holds a 40% stake in the venture, with the Shanghai Electric Group and Shanghai Guoshang, the city government’s investment arm, holding approximately 15%. Crucially, foreign enterprises have been encouraged to invest in the remaining assets.

Closer to home…
The UK’s aerospace industry is the biggest in the world outside the US, with 17% of global market share, that generates £20bn annually, employs over 100,000 people and enjoys 9% year-on-year growth, in spite of the economic maelstrom which has affected countless sub-sectors within manufacturing.

Indeed, British-based companies continue to win prestigious contracts across the gamut of both domestic and global aerospace industries. For example, in February alone GKN Aerospace and Cytec Engineered Materials were awarded contracts for Bombardier’s CSeries aircraft, Thales UK was chosen to upgrade three Trafalgar-class and three Astute-class submarines, and BAE Systems signed an agreement with Mitsubishi Aircraft Corporation to provide design integration and certification services for Mitsubishi Regional Jet aircraft.

Appealing as it may be to dismiss concerns of an increasing Chinese aerospace capability while domestic orders are strong, however, such optimism must necessarily be tempered. For there is, it is fair to say, an elephant in the room — namely the arms embargos imposed by the European Union and US due to the Chinese suppression of protests in Tiananmen Square in 1989.

Earlier this year, the Chinese authorities reacted angrily to news that American groups — including Boeing, United Technologies, Lockheed Martin and Raytheon — were involved in a $6.4bn arms deal to Taiwan. Accordingly, Derek Marshall, director of policy for ADS said: “There should not be any direct impact on British firms because they are not selling arms to Taiwan, but there could be a knock-on effect if severe restrictions are placed on Boeing, for instance. If one of the major players in civil aerospace is getting into difficulties with China the impact of that could roll down and affect its UK subcontractors.”

The geopolitical atmospheres of a Western arms embargo will, therefore, continue to represent a nagging feature of the Chinese aerospace question. Foreign ministry spokesman Ma Zhaoxu, however, claims such concerns are political prejudice against China, which run counter to world tides and China-EU strategic partnerships. Such views appear to curry favour with France and, increasingly, Spain — with the latter’s foreign minister, Miguel Angel Moratinos, recently calling for a re-evaluation of Sino-European arms contracts.

Whether such noises encourage a re-evaluation of Member States’ policies towards human rights abuses in the face of increased trade opportunities remains to be seen. What we can say, however, is that, embargo or not, China ain’t going anywhere — with respect to its commercial aviation requirements and, indeed, wider defence capabilities. As a result, opportunity knocks as perhaps never before for UK-based aerospace manufacturers, with lengthening supply chains, a growing global orderbook predicted for 2010 and what Tom Lawton, head of manufacturing at BDO, calls “the core knowledge transfer from Western companies. This represents a central aspect of the Chinese remit, never more so than in the aerospace sector.”

Coupled with the fact that a healthy percentage of its components continue to be produced outside the territory, China unquestionably represents aerospace’s new frontier; a land of opportunity for both UK and foreign manufacturers.

*According to A|D|S, the trade organisation for the UK AeroSpace, Defence, and Security industries