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BizAv In Asia-Pacific:
China Report.

Over the last few years global business aircraft forecasts have predicted a surge in business jet orders from the People’s Republic of China. The initial trickle of orders- for large corporate and super mid-sized jets- is now growing into a torrent. Chinese corporations and a new wave of young entrepreneurs see the ownership and charter of business jets as the fastest way to beat their competitors- while at the same time rocketing their own status above that of their peers.

The surge can be traced back to two crucial factors: The general Chinese acceptance that to be rich is OK- and the attitude that if you’ve got the money why not show it? The pivotal change- however- is that the Chinese Government is now totally embracing Business Aviation as an essential tool to the continuing success of the Chinese economy.

“The Chinese Government is very supportive in developing the General Aviation industry and is probably leading Asia-Pacific Business Aviation development-” observed Jason Liao- Chairman & CEO- China Business Aviation Group. Coinciding with this new attitude- two and half years ago Beijing-based Minsheng Financial Leasing Company (MSFL) spurred on the phenomenon by supplying finance to Chinese nationals.

This and MSFL’s Business Aviation marketing enthusiasm has seen it accept ten aircraft deliveries so far. It has another 22 aircraft on order- and plans to have 50 aircraft- ordered/delivered by yearend- half way to meeting its own ambitious target of 100 aircraft ordered by the company’s fifth anniversary in 2014.

DEER JET CHARTER PROSPERS
China’s oldest and best known business jet charter operator- Deer Jet (a subsidiary of China’s giant Hainan Airline Group HNA) which started operations in 1995 with five Hawkers- is now moving into overdrive to meet charter demand for both its managed and owned fleets. The expansion will underline Deer Jet’s position as the largest VIP charter provider in China with 35 owned aircraft and 20 under management by year-end.

Deer Jet has just taken delivery of a brand new ACJ319 (note new Airbus designation)- which was completed by Airbus Corporate Jet Centre – Toulouse- and is the first China mainland-based aircraft to be available purely for charter. The aircraft is certificated to carry up to 28 passengers.

In addition- the company operates another ACJ- a Boeing BBJ and 12 Gulfstreams (including four G200s)- four Hawker 800XPs- two Hawker 850s- a Hawker 900XP and a Hawker 4000. On order is a VVIP Airbus A320- possibly three more BBJs- a Gulfstream G450- Dassault Falcon 7Xs and Bombardier Global Express XRS.

Deer Jet’s business jet charter revenue grew by 21% in 2008- 32% in 2009 and although the company expected 60% in 2010 it actually achieved 80.5% according to Mr. Zhenhui Fang- the company’s General Manager- Sales and Marketing.

According to the company- its operation accounts for more than 90% of China’s business jet charter market- and in 2009 its business jet fleet flew 6-300 hours to 426 destinations in China and much further afield. By comparison- in 2010 it achieved 10-000 hours. Deer Jet’s charters used to be split 60/40 in favor of foreign versus Chinese clients. “Now our traffic is 80% Chinese and 20% foreign-” revealed Mr. Fang.

In April- Fly Comlux (the Swiss headquartered long-haul luxury charter specialist) signed an agreement with BCA/Deer Jet to develop VIP charter markets in Asia- Central Asia and Europe adding to Deer Jet’s uplift capability and using its specialist knowledge of operating within China. Business comes from four main sectors for Deer Jet- including: corporations; the entertainment industry; government charters; and medical evacuation flights. In addition to its charter operations- the company opened Deer Jet Beijing FBO at Beijing Capital Airport in May this year.

MSFL HELICOPTER AMBITIONS
Minsheng Financial Leasing’s vice president Zhang Bo has announced the company will vigorously expand into helicopters with 20 orders this year. The company is currently researching seven-seat executive helicopters from the major OEMs; two are to be twin-use aircraft- used by MSFL executives as well as for company demonstrators.

Zhang Bo also claims MSFL is to get involved in the operation and maintenance of business jets and helicopters this year- but didn’t specify if this would be purely through financial backing or whether the bank is to partner with specialist companies.

The only two major business jet OEMs not to have received orders from MSFL so far are Cessna and Embraer- but last month Minsheng signed a strategic cooperation agreement with Embraer “to create financing opportunities for selling Embraer executive jets to China- the international market- and to jointly promote executive aviation in China.”

David Tang- Minsheng’s chief Business Aviation advisor- revealed the bank’s executives recently experienced a demo flight aboard a Lineage 1000 in China and are interested in acquiring this model as well as Legacy 650s. Insiders also reveal a Cessna order is imminent from the bank- but no details are currently available.

CHINESE PRODUCTION TALK…
Embraer recently announced that it will produce Legacy 600 and 650 aircraft at its Harbin Embraer Aircraft facility in conjunction with AVIC of China. And according to reports Hawker Beechcraft is also thinking along these lines- and is at the preliminary stage of looking for a local partner to open a manufacturing facility. This may be for parts production initially.

NEW GROWTH- NEW FINANCING SOURCE
According to world business aircraft data source JETNET LLC*- by May 1- 2011- there were a total of 172 business jets registered in mainland China- Hong Kong and Macau combined. For Chinese mainland-registered aircraft- regardless of where they are based worldwide- the number is 132.

Seventy of the current aircraft listed on the Chinese Civil Register are medium and wide-cabin business jets with ranges from 2-500nm to around 6-500nm. Thirty five aircraft are based at Beijing- 13 at Hong Kong- while others- mainly in ones and twos- are based at Baotou- Changsha- Chaoyang- Shanghai- Shenzen- and Taichung. Two more aircraft are listed as being based in the U.S. (Atlanta and Fort Lauderdale) while four others are at Macau- Lagos- Taipei and Haiti. According to David Paddock- Jet Aviation’s Senior Vice President- Group Business Development and Strategic Planning- “Over the next five years we expect the number of business jets in China to grow to around 400-500 - call it 20-25% compound annual growth.”

In line with the projected fleet growth- the world’s largest commercial bank- the Industrial and Commercial Bank of China (ICBC) has just started offering business jet finance- but unlike MSFL is more interested in ordering fleets in line with its commercial airline leasing philosophy.

It plans to have 15 business jets financed by year-end- and would like to help finance NetJets’ massive $6.7 billion business jet order placed with Bombardier. Earlier this year ICBC Leasing signed an $8 billion Memorandum of Understanding general agreement with Bombardier Aerospace covering the Canadian company and its Business Aviation and commercial customers.

AIR OPERATOR CERTIFICATES
Until recently- mainland China-registered business jets had to be affiliated to a Chinese airline Air Operator’s Certificate (AOC)- but new government legislation now frees-up private companies to apply independently. Between five and ten AOCs are being issued annually to these new companies.

China First Mandarin Group (CFMG) of Shenyang gained one of the first non-affiliated airline AOCs- and recently announced it is forming a preliminary joint-venture with TAG Aviation Asia Ltd. covering charter- aircraft management and aircraft maintenance. Final approval of the alliance- named TAG Aviation China- requires governmental consent. (CFMG’s present charter operation is named ZYB Lily Jet and operates a VIP Challenger 850.)

Swiss-based VistaJet- which has a 27- strong (all-Bombardier) business jet charter fleet- says it flies in and out of China on a daily basis. Founder and Chairman Thomas Flohr explained his company is in the process of formalizing a strategy for China- but is not yet in a position to announce anything.

Among the Chinese commercial airline affiliates is Shenzhen-based cargo airline Donghai Airlines which has branded its new business jet charter operation Donghai Jet. Five Bombardier Challenger 605s have been on order- and the first arrived last November. Donghai Jet President Huang Chibiao plans to increase the company’s business jet fleet to 36 within two years. The company plans to establish other bases at Beijing and Hong Kong- and is in the process of building a training center and FBO at Shenzhen Airport where business jet maintenance will be offered to third parties.

Air China Jet is the Business Aviation charter brand of Air China- while China Eastern Airlines has China Eastern Executive Air and recently qualified to launch its operation. Air China Jet has a Gulfstream G450- a Dassault Falcon 7X and an Airbus A318 Elite- while China Eastern Airlines Executive Air has an owned fleet of Hawker 800s with plans to expand by another five-to-seven new aircraft.

BAA Jet Management of Hong Kong has operated on a Hong Kong AOC for a number of years and continues to thrive there. It also has a JV partnership with Shenzhen Airlines- and operates several of its aircraft under a Chinese AOC. With offices in Shenzhen and Beijing it has ambitions to expand operations throughout China.

Work is well underway on a new facility in Tianjin- while its fleet includes Gulfstream G200s- GIVs and GVs- an Airbus A318 Elite and a Project Phoenix VIP-configured Bombardier CRJ-200 aircraft. It also has two Airbus ACJs and an ACJ Prestige on order for its clients. Meanwhile BAA Jet Management of Shenzhen recently took delivery of a 15 seat VIP Challenger 850 and has another on order.

A further three Challenger 850s are on order by Chinese clients while another is destined for India- according aircraft completions company Flying Colours of Peterborough- Canada.

OPPORTUNITIES AND CHALLENGES
“The industry is growing very fast- and there are lots of opportunities in China-” says Liao. “Now is the time for companies the world over to invest in the Chinese Business Aviation infrastructure. Western know-how and investment for aircraft ground handling- maintenance- management and flight operations are needed to keep pace with the influx of new and foreign visiting aircraft.”

Liao’s view is echoed by many within Chinese Business Aviation circles with one outlining that- “The Chinese market will be modulated by the number of companies offering MRO and FBO coverage”. Another added- “There aren’t a lot of executive terminals or FBOs yet but they’re coming. China isn’t a good place to experience an AOG (unserviceable aircraft on ground) as spares inventories are scarce - but it is much better than it was a few years ago.”

A potential qualified pilot shortage is one issue in need of resolution in the country- along with the need for more airports (especially away from the eastern seaboard)- additional moves to free up airspace for more direct routing- and the loosening restrictions on upper airspace. All would make business jet travel easier and more economic. En route fees and charges are also very expensive by western standards with a Gulfstream-sized aircraft costing around $6-000 to enter and exit the country at present.

Infrastructure is starting to build though- and joint venture companies are forming to meet demand in aircraft management- operations- maintenance and handling. ExecuJet has teamed with Tianjin Haiti to form ExecuJet Haite Aviation Services China Co. Ltd. which will offer full-service business aircraft maintenance and aircraft management operation complete with FBO. The operation is based at Tianjin Binhai Airport- 120km South East of Beijing (30 minutes by high speed train) where the maintenance facility is due for completion by August this year.

The joint company plans to obtain a Chinese Part 135 (Charter) AOC and a Part 145 maintenance certificate- and initially expects to maintain in excess of 40 business aircraft annually.

Jet Aviation’s David Paddock is thinking along similar lines- “There are significant opportunities in China and also a great amount of interest particularly from Chinese companies who want to partner with western organizations to develop the Business Aviation infrastructure.

“We’ve signed a term-sheet with a local partner to start exploring options and I would guess in the next year or two we’ll come up with a fully-fledged [aircraft] management [and charter] product in China.” He added that it would be difficult to manage airplanes without some level of maintenance support- “So it is likely that we would have some form of maintenance set up as well.”

Hawker Pacific of Australia has had a presence in China since it opened a Beijing office in 1984- “…We’ve got a long exposure of experience in that market-place-” said Alan Smith- CEO of Hawker Pacific. He believes it definitely helped win the bid in the joint venture with Shanghai Airport Authority to open China’s first FBO at Shanghai- Hongquiao Airport. The Shanghai Hawker Pacific Business Aviation Service Centre will offer aircraft management services there.

Backed by its new major investor SEACOR Holdings Inc of the U.S.- Hawker Pacific is now actively looking at further FBO possibilities in China and has a business development manager in place especially for the purpose. The company’s JV FBO is performing ahead of expectation- Smith explained- as its Shanghai MRO became fully-operational in May.

Hawker Pacific is also to invest $11.6 million in a new customer sales and service center at Seletar Aerospace Park- Singapore- moving from its current Piccadilly East Camp location because of airport re-development. It will feature a business jet maintenance center and another building containing- state-of-the-art paint shop- associated workshops- stores- administration and sales.

An FBO with VIP reception area- customer and crew lounges and dedicated undercover jet parking is also part of the complex according to reports.


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