Not in Plane Sight
Beijing wants to create a domestic aircraft industry, but it will need to overcome significant intellectual-property-rights hurdles before it's time for Boeing and Airbus to get nervous.
Today, China is the world’s fastest-growing commercial aircraft market. Yet, despite the best efforts of Beijing, the majority of planes taking off and landing in China remain embossed with the manufacturing logos of Boeing and Airbus. Although China has a glut of domestic airlines, it has no large aircrafts of its own design.
This has been a milestone week for China, with news that the country has become the world’s top exporter and its top auto-market, and is poised to overtake Japan to become the second-largest economy sometime this year. Yet while China’s consumer appetite and economy are growing rapidly, Beijing has not yet achieved the pinnacle of high-tech manufacturing: producing its own large commercial aircraft. Could this change soon? Probably not.
It has been more than a decade since China started its concerted drive toward manufacturing its own commercial aircraft, but only in the last 18 months has there been much to show for it. Last summer, two small Chinese-made aircraft made test flights, events that were of course heavily lauded by the Chinese media. Chinese experts are now hopeful that a 150-plus-seat jumbo jet under development will also be ready to take to the skies for testing within the next few years, in time for full release by 2016.
Still, many questions remain unanswered about both jets, and doubts persist as to whether China will be able to produce anything in the next decade that will cut into the market of the more established Western aircraft manufacturers.
With the recent establishment of a well-funded airplane development and design center outside Shanghai, the successful test flights of the ARJ21-700 (which made its maiden flight in July last year), and the progress being made on China’s first jumbo jet, the C919 (scheduled to roll off the production line in 2016), it’s clear that Beijing is now investing heavily in trying to create a domestic aircraft industry.
But the ARJ21 — short for Advanced Regional Jet for the 21st Century — has been plagued by delays and setbacks, while much of the technological specifics surrounding the C919 have yet to be announced. Information that has been released about both planes hasn’t impressed industry insiders.
"The ARJ21, on a comparable basis to other aircrafts in its class, is overweight and essentially old technology," says Scott Hamilton, founder of aerospace consultancy Leeham Co. Indeed, the ARJ21 is 15 percent heavier per seat than its closest rivals, which could create problematically high fuel costs. Hamilton also suggested that the C919 seems likely to be heavier that its rivals and apart from its engine, will be made with technology that will likely be outmoded by the time of its anticipated launch.
For many years, China was trying to go it alone: to create entirely Chinese designed, equipped, and manufactured airplanes. But that has proved unrealistic, and now the country is relying on foreign parts and expertise for key technologies. Getting the best is not proving easy, however.
Although it’s common for Chinese and foreign companies dealing with simple-to-produce goods such as clothing to work together, the huge sums involved in researching and developing components for the complex machinery used in aeronautics make foreign companies cautious about allowing third parties access to it.
Worries within the worldwide aerospace industry about the weakness of intellectual property rights protection in China are a major barrier. Top-tier airplane parts developers and manufacturers, including GE and Honeywell, have shown reluctance to allow access to the latest technology to Chinese partners. They have been especially wary of establishing joint ventures within China and with Chinese manufacturers, as joint ventures are seen as giving Chinese engineers and scientists easy access to technological know-how.
Although joint ventures between Chinese and foreign companies dealing with simple-to-produce goods such as clothing are common, the huge sums involved in researching and developing components for the complex machinery used in aeronautics make foreign companies cautious about allowing third parties access to it.
This has been especially the case with the key technologies of engines and avionics: the brains of the modern plane. While happy to use China as a manufacturing base for the aircraft body — as many of them have done for years — Western aircraft supplies have long kept production of the most valuable parts in the West. "People I talk to in the industry say that [intellectual property rights] protection is the main reason they don’t bid with their best technology; which means that the [Chinese] planes will get built with last decade’s models," said Richard Aboulafia, an aviation analyst with U.S.-based Teal Group. "Old equipment is not going to revolutionize the Chinese industry."
That wall may be gradually coming down. With an eye on the sheer scale of China’s aircraft needs, along with clear signs that China is pushing to have its own planes competing for market share with Boeing and Airbus even if they have to be fitted with foreign parts, a few Western companies are starting to bring their more important technologies to China.
In November GE announced that it was forming a joint venture with Chinese state-owned Aviation Industry Corp (AVIC) to produce avionics in the country. It is a move that many others may choose to replicate, and China is showing itself happy to use the size of its aircraft needs as a bargaining chip to push its aircraft industry forward and to try to gain access to leading technology. "Western companies know that China wants to learn aerospace, and have to balance trading secrets for business," said Leeham’s Hamilton, an opinion echoed by many within the industry.
There’s a lot at stake. Boeing’s 2009 report on China’s aviation needs calculated that the country will need approximately 3,400 new airplanes over the next 20 years — roughly 12 percent of the worldwide total between now and 2030. "China is going to remain the largest single country market outside of the U.S. for at least the next 20 years," said Wang Yukui, head of communications for Boeing China.
With so much domestic aircraft need, there is a great opportunity for Chinese-made airplanes to be launched in a friendly market more accepting of the small errors that are likely to be regular features in the years immediately following the launch of any new plane. But concerns remain that the Chinese government may pressure domestic airlines to buy inferior Chinese-manufactured planes to stimulate the industry.
"There will be some pressure from the government to use Chinese planes, but if there are safety or reliability issues, the airlines can and will refuse," said Lu Jian, an expert on aircraft design and head of the department of mechanical engineering at Hong Kong Polytechnic University. What Lu does expect to see is increasingly strong incentives, in the manner of tax breaks, for airlines willing to go with Chinese planes near the beginning.
Anything more than this is likely to meet with heavy disapproval from Boeing, which fought hard against the EU subsidizing of Airbus when it first came on the scene, and which does not want to see its market share in China significantly reduced. Boeing’s Wang would not comment on questions regarding unfair government support in China, but he stated that "as a company we support free-market mechanisms."
Despite the technological weaknesses of the ARJ21 there have been close to 100 announced orders to date, predominantly from big state-owned Chinese airlines, as well as from a few airlines in emerging markets like Laos.
Regardless of the size of China’s aircraft needs in future decades, Chinese aircraft cannot rely exclusively on domestic demand from state-owned carriers, even if the country were to freeze out the likes of Boeing or Airbus, which no one is suggesting it will do. Ultimately, China will need to create planes that can compete in the global market and offer improvements on existing, proven models; something that, despite the hype, the ARJ21 and C919 are not likely to do.
And in addition to improving technology, China’s aircraft industry will also need to show that it can deliver the support necessary over the long life of an airplane. Without strong proof that it can deliver the parts and customer support needed quickly and globally, few airlines are going to be willing to invest in expensive machinery when more proven models are on the market.
Despite the nationalistic goals, not to mention the money being spent on the industry — the Commercial Aircraft Corp of China, the amalgamated organization set up in March 2008, was given an initial RMB 19 billion (US$ 2.78 billion) with which to compete, on top of the billions already spent on the industry over the years — China looks to be years, if not decades away from producing a viable rival to the likes of Boeing’s 747, let alone planes that can dominate the skies.
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